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Federally Funded Friday

bernanke.jpgDon't you think this is a bit much?

Do we really need Bernanke AND Bush to each have a plan to save the markets from 13,250 today?  Bernanke is scheduled to say something at 10, followed by the President, "who is expected to introduce a plan to reduce some of the pressure on squeezed homeowners by, among other things, changing the Federal Housing Administration mortgage insurance program to allow more people to refinance with FHA insurance if they fall behind on adjustable-rate mortgages," according to the WSJ.

We spoke extensively about this in chat yesterday and I said early on (as we pressed our Dow squeeze plays and added Nasdaq squeezes): "Bernanke can send us below 13K tomorrow or back to 13,500 with a single word (Imagine the power!).  If Santy Clause doesn’t come down the chimney tomorrow the market will throw a tantrum but Mommy (Paulson/Schumer/Bush) will tell us that Santa may still show up on the 18th if we’re good so it’s likely to be chop, chop, chop if we don’t get a firm indication of a cut."

The bulls can thank Bush for giving the markets a strong kick-start but did the President schedule his statement to add what would have to be unnecessary top-spin to Ben's statement or is Bush coming on to counter the Fed statement after the Chairman wouldn't give him what he wanted? 

I certainly hope that's the case as that was the plan I laid out for Ben yesterday when I said: "The only responsible thing for Bernanke to say tomorrow is that the economy is strong however certain sectors which were overheated, housing in particular, are cooling down and that the sub-prime issue is unique but controllable BUT NOT through a Fed rate cut. While the Fed stands ready to provide liquidity as necessary, we do not see it as necessary at this time and we believe that it is the responsibility of Federal regulators to step in and help resolve issues for Americans who find themselves faced with mortgages that will be difficult to maintainThat’s it. I have a big stick and I’m not afraid to use it will be a lot smarter than using the stick and having everyone realize it’s not big enough."

Remember it was George Bush Sr. who set up the Resolution Trust Corportation to bail us out in the last S&L crisis (which the press is VERY careful not to call this) so it's not a big leap of faith to imagine that Jr. would cotton to an idea that kept so many of his Daddy's friends out of jail.  Also, please remember that the Resolution Trust Corporation was another way to pull hundreds of Billions of off-budget dollars out of the hands of the people and hand it to the wealthy even though fraud was discovered in 60% of the thrifts siezed by the federal government in 1989.

Another nice bonus when you get "emergency" powers to set up a $350Bn corporation is you get to staff it with your cronies who can then do your political dirty work, even after you are out of office.  This is such a huge bonus that one might even be tempted to foment a crisis in order to be assured you would be granted extra-ordinary powers, but that's the kind of stuff you only find in spy novels…

So lots of fun in store and I'm very sorry I will be missing it this morning.  Looking at our wild pre- market action I will be setting trailing stops on my index calls and planning to roll up my index puts to protect virtual portfolio gains when I come back around lunchtime.  I'm going to be late for my meeting though as this is an opening I DO NOT want to miss!

Personal income is up 5%, personal income up .4%, the PCE deflator up just .1% – these numbers are simply unbelievable (as in numbers that are hard to believe) and the confluence of events this morning is equally incredible but we are going to have to continue to go with the flow today, which is definitely positive this morning!

Asia was up, Europe was up blah blah…  Who cares – we're getting some action!

All the same bad news we've talked about all month is still there but IT JUST DOESN'T MATTER this morning because magic fairies are going to come down from the sky and waive their wands and suddenly all those terrible loans will become good ideas again and all those overpriced homes will become a bargain and we're going to win that war!  Ok, the last one was a bit of a stretch…

Needless to say I will be taking this rally with a Lot's wife-sized grain of salt but that shouldn't stop us from profiting from the market gyrations.  Mrs. Lot, if you'll remember, got salted for looking back on Sodom with regret so we will avoid the wrath of the markets by letting go of our positions with no regrets if things don't go the way we thought.  We spent much of yesterday talking about levels and stops and we should pay close attention to what will constitute a breakout today.

That means it's time to go back to the old reliable Big Chart and make sure that the moves we get today actually make the levels we need to get back in rally mode:

 

 

 Week's

Must

Comfort

Break

Next

Index

Current

Move

Hold

Zone

Out

Goal

Dow

13,238

-140

13,000

13,300

13,500

14,000

Transports

2,825

-44

2,800

2,900

3,000

3,250

S&P

1,457

-22

1,470

1,505

1,530

1,550

NYSE

9,456

-151

9,400

9,800

10,000

10,250

Nasdaq

2,565

-11

2,525

2,550

2,600

2,750

SOX

490

-5

480

490

500

560

Russell

783

-15

810

830

850

900

Hang Seng

23,984

407

20,250

20,750

21,000

22,000

Nikkei

16,569

268

17,400

17,700

18,300

18,500

BSE (India)

15,318

476

13,500

14,100

14,725

15,000

DAX

7,603

80

7,300

7,600

8,000

8,200

CAC 40

5,664

53

5,750

6,000

6,100

6,300

FTSE

6,277

57

6,400

6,550

6,600

7,00

Those are the changes since Monday.  Isn't it funny how you can get caught up in the moment and forget where we really are?  The only green we gained was the BSE, which is certainly a good thing, but we lost the S&P, the SOX and the Nasdaq so unless we retake AND HOLD those levels, I really don't see what all the fuss is about.

We'll be following through with our plan to pick up XOM and other oil puts into the weekend as oil always goes up before a holiday weekend but we are still fairly bearish in the longer-term.  Let's look for the XLF to make great improvements and the XLE $70s make a nice upside momentum play.  We'll see if oil can take out $75 as the shorts cover ahead of the holiday during hurricane season!

Have a happy holiday

!

- Phil

 


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  1. Good morning!


  2. Great, just incase of Bernanke screws up, Bush will be there to bail his butt out…. Euhhh I don’t want to cover my shorts at a loss.


  3. I hope to find a good mo play today


  4. AAPL pre-market is at 139.30 range… nice…


  5. Tuesday will be another day, after the globe has digested Ben and George and the market reaction.

    Maybe I should set some crazy low limit orders on way in the money puts today?

    It’s just as dangerous a work place out here as in the mines.

    “SAFETY PAYS”


  6. Sometimes I just can’t wrap my head around all these manipulations.


  7. OIL- above $74


  8. DIA,

    so Phil, where do you stand right now with DIA postions? yesterday was pretty manic and hard to keep up with.


  9. Phil:

    Would it be a good idea to try to buy back the oil puts ASAP at market open? Looks like they are going to jump w/ the market. Or, (trying to read Phil’s mind) is this a weekend play and you’ll use the run up to DD your puts for an early week drop? (I’m finding I probably don’t have the stomach for oil shorts.)


  10. So are we going to gap and crap today? AAPL, RIMM, GRMN, ISRG and so many looking good.

    j


  11. XOM and COP up a $1 pre-market…


  12. Phil,

    What to do with these kind of govt interventions? It really screws up your positions, especially if you fundamentally believe that things should go the other way. Just DD and roll with it?


  13. … Well atleast my canadian dollar will move up a few hundred pips if they signal a cut in rates…


  14. Gap and crap, that is great Juliet.


  15. wait i got it!.. Bernanke is going to offer no rate cut!! And Bush will talk about how the economy is not all that bad.


  16. juliet
    Very Clever on your comment, I am taking some off at the open.


  17. EXM & DRYS – look very good, Juliet, g’morning all


  18. Check OTEX, very good earning, the stocks has near 30% short interest… will fly


  19. euh I don’t know anymore, should I cover my shorts?


  20. I agree, Bush is supposed to soften Ben’s “tough” stance. When it is up to Bush to provide the warm fuzzies, we are definitely in trouble.


  21. DIA Mix:

    150 OCT 133.00 DIA CALL (DAWJC)
    100 OCT 131.00 DIA CALL (DAWJA)
    300 OCT 132.00 DIA PUT (DAWVB)
    200 SEP 133.00 DIA PUT (DAWUC)
    300 SEP 133.00 DIA CALL (DAWIC)
    100 OCT 130.00 DIA PUT (DAWVZ)
    200 SEP 132.00 DIA PUT (DAWUB)

    Dont’ forget the portfolio is very bullish otherwise with few put positions (although lots of covers) and I’m not too worried about the Octobers so it’s more about my 400 Sept puts vs my 300 Sept calls than the 400:250 October mix.

    CVX will be a DD and XOM I’m buying the $85s as it was a premise oil would go down after the weekend, not today. Again, scaling will save your portfolio!


  22. Selling 1/2 Sept DIA calls into the initial excitement (and the Qs) will rebuy to cover on a dip. XXX Selling by the way means setting .10 stops, not just randomly selling!


  23. APPL & RIMM sold from yesterday buys on the pullback. Morning Excitement
    NOV- I love it


  24. what price are you buying naked xom puts? XLE is moving higher :/


  25. ok what is the timetable for all the events today. when does bush speak, bernanke?


  26. BBD:

    Was out yesterday and missed your comment about VIP. You were
    right as usual !


  27. OIH

    Looks like a good spot to sell calls.


  28. I am so mad that I have to go! Obviously holding 133 is critical but let’s really make sure our lagging indexes stop lagging. At 13,325 I’d start getting concerned that the Dow can’t hold it. The Qs need to get back to $49 to be bullish from here but it’s all about Bush/Bernanke and I hate to lay something out so far in advance but at this point I’d be tightening my puts up (that I am doing) ahead of Ben. If Ben rallies the market, Bush can only add to it so dump the puts then.

    If Ben kills the markets, then I would stop out of the calls, mattress the puts and wait for George. If George reverses the decline then just do the reverse (and don’t forget you can mattress up and down).

    Gold is shooting up ($684) and the dollar is crumbling as there are few combinations of these two guys talking that will give foreign investors a reason to think we’re not driving this economy straight to the 7th level of Hell with all this idiotic tinkering…

    Sorry I have to go but I’ll be back around noon hopefully….


  29. COH- nice bottom picking PHIL.


  30. XLE is a mo play, XOM I have to start with a 25% buy (100) here as I’m leaving and I really want them. I’m still mad from yesterday and may buy all of Mr. 3000s $85 puts out of spite, now $1.30!

    Gotta run!


  31. Whew – got back oil puts almost even aong with sold covered calls on metal plays on the opening bid trick! Why does it make me sick to cheer: Go Benny Bush team! Kill the dollar; run inflation and commodities!?!?!?


  32. NOV- took some off when up $5 $$$


  33. Quick question, what does mattress mean again?


  34. have fun phil!


  35. I can’t imagine the pressure Monsieur Bush is putting on the Fed’s to salvage this market. The war in Iraq depends on this. Bush is seizing this opportunity to look like superman for the common guy. I think we are going to have a huge run.. but still .. my predictions suck so holding tight.


  36. oh thanks foto!… It’s basically a hedge, i figured so, but didn’t realize. Thanks again!


  37. ALBO- VIP don’t worry we will have a pullback on this guy and then you can go long. Who know maybe today. LOL


  38. Juliet: “gap and crap”. you are too funny LOL!


  39. There is something remarkably tacky about an unpopular and lame duck president undercutting Federal monetary policy


  40. Fed- No Bailout = No cut….It seems clear to me


  41. hey just subscribed a few days ago and because im not in the states at the moment havent really been able to post anything during the day; just wanted to say hi and that im excited to be a part of the community


  42. i’m getting a little sick of the rich too pouting when they dont get their way so they throw a fit and sure enough get their way


  43. SPY has to close lower than 147.22 before we see a break downwards. But it sounds like the fed ain’t bailing anyone out


  44. BBD,

    Nov and Yanks – clean sweep for you – congrats


  45. Welcome John.
    It is safe to bet on the rich getting their way.


  46. Hey John, glad to have you, welcome… Go through the tabs and familarize yourself with the community.


  47. does anyone know if AAPL shoots up the morning of major announcement?..


  48. Phil, anyone,

    Would you also consider buying puts on PTR going into the weekend


  49. BBD
    what did u do to NOV>> LOL


  50. Yanks- as JKMan said yesterday all this does is keep us interested. But I am very pumped for Football this weekend.


  51. Welcome John, today is going to be one fun day.


  52. YEAH COLLEGE FOOTBALL!!!


  53. In Phil’s absence I hope you experienced traders are going to translate all this speech crud into tradable action for us less informed!?! This is a bad morning to wonder if you’re political hermenuetic skills need upgraded.


  54. Selling OIH 180′s for 4.6


  55. I never felt so sick about my money before… I am so overly short, the fed isn’t bailing anyone out. and the market is still going up…@#$@#%


  56. NOV- took some more off on those Feb 100. Over $2000 per contract. $$$$ Also some Nov 120′s. I guess I can buy some drinks this weekend in Mexico.


  57. Nice hit there BBD!!! Will you fly me down to Mexico as well?


  58. I think the market is still waiting to see what Bush has to say before a big reaction. They see a lot of pessemism that has been raining on the stock market over the housing situation may be getting the reliefe it needs.


  59. Demetrius Michael,

    So am I buddy and I think we may still be right but we have to get throught this speech by the President. He’s gonna throw a small bone but I don’t think thats its gonna be hugh like CNBC and their “Bush Bailout” countdown clock are making it out to be.


  60. why is WFR so strong?


  61. NOV- yeah alot of volume interesting, BillbigD it is rude to brag about hitting HRs! lol


  62. BillBigD – nice job on NOV, as well as sticking with COH (I got off the train a while back). Time to start paying better attention to VIP, didn’t even realize it was earnings for them yesterday, but like you said I think there is still opportunity with this one.


  63. Anyone else here have the experience of looking at Phil’s trades posted at the end of the day and getting frustrated because it wasn’t clear on a several of the trades he was doing?


  64. if it weren’t for erin i wouldnt even watch cnbc. can barely stand having it on mute while on computer. i lose more and more respect (although not sure i even have any left) for cnbc each day


  65. Bigsmokey & Demetrius: I am WAY short as well and still think I am right too, but my stomach is churning and burning with each up day. I know we will retest the lows, but will we do it before my Sept puts expire? I have cash to roll to Oct, but it may not be worth it by then.


  66. CNBC

    Think of it as Comedy Central II and it’s much easier to watch.


  67. concievable i know what you mean. in my case its not that they arent clear. its the fact that i dont know the terminology of it all yet. but yeah i know what you mean


  68. i dont know about the rest of you but them new servers are gonna be welcomed by me with open arms


  69. Hi everyone
    Joined a few days ago. No experience!!! Have AAPL 125 PUTS.



  70. DO- Looks very nice


  71. CNBC – I would great appreciate if someone can post the ‘live’ hyperlink?


  72. I agree with you since I haven’t been permitted to trade spreads yet from Fidelity I have so many naked Puts. I sold my SPY calls 1/2 hour ago. I am concerned.


  73. Sohrab – those puts won’t be very popular ’round these parts! Apple zealots aplenty ;)


  74. I am short as well. On my charts we are still in a correction. That being said, and even if I feel your pain as I have been there too, nobody should feel “sick” about their money. If you are, your positions are way too big and you are not hedged. Especially in times like this, nobody knows what is going to happen. All we can do is guess, and it is not the time to have big positions. Anyway you should NEVER risk more than 5% of your portfolio on 1 position. This is basic money management, and the only way you will last in this job.


  75. Bush plan – I don’t see how it’s going to work. FHA guaranteeing mortgages?!? So if there are defaults, the government ends up owning their houses or help pay their mortgage? WTF, where do I get in line?Where is the money coming from (visions of printing presses going into overtime)? And the beauracracy…. I’m definitely on the bearish side too, and it’s going to be a tough decision on how much hedging to leave in place over the weekend.


  76. DO

    BillBD – what month are you looking for DO?


  77. Greg – a quote from Reminiscences’ comes to mind:

    “I can’t sleep” answered the nervous one.
    “Why not?” asked the friend.
    “I am carrying so much cotton that I can’t sleep thinking about. It is wearing me out. What can I do?”
    “Sell down to the sleeping point”, answered the friend.

    ;)
    J.


  78. Hi all! Anybody using charts for day trades? I was hoping to get some feedback on what kind of indicators you use and the settings that are most effective. I’ve tried MA, MACD and RSI, but still finding I need better entry signals and exits.


  79. BillBigD, good to know that you like DO. I just bought Dec $105 calls. Planning to sell calls against it when it gets too toppy eventually.

    j


  80. KC,

    I wanna jump on line too. I’ll take on McMansion and a job at the beauracracy…please


  81. i dont have TV here. when is BUSH supposed to speak???????


  82. right now – 11:00AM EST


  83. Juliet -WOW we think exactly alike that is what I got DO DEC 105′s.
    Off to the airport


  84. Greg – if you’re really attached to your index puts, you might want to cover with index calls as that will somewhat alleviate the pain of your OTM puts. I’m at the juncture of deciding whether to cover my puts again (after selling my calls this morning) or just lightening up. Some more Bush plan details will help.


  85. i do have a huge amount of respect for benny today though. not giving in to all the crap


  86. Juliet – loved your “gap and crap” post. Now, let’s see it happen. LOL.


  87. Where is Bill Poole it would be nice to here from him today….


  88. Anyone trading CLF?


  89. KC, wonder what Bush will do now…will he be able to push the market.
    BillBigD, scary, how we think alike…lol.

    j


  90. apparently no one cares what Bush has to say. Now back to the usual machinations


  91. No bush is important. Listen on cnbc.


  92. i think its BS bailing out these guys. theres a reason i dont have a house. not putting 0 down on a overpriced 400,000 house was a no brainer to me. i dont understand how some people could walk in and sign on something like that.


  93. jkman – I did that

    Signed an 910k house buy with $0 payment


  94. i agree jkman !
    bush is so pathetic – he reads (poorly i might add) of a prepared script and doesn’t have a clue what he’s talking about !
    ugh!


  95. Given what Bernanke and Bush said, in my opinion, the market should not be up today.


  96. well now what lol


  97. expect a 200 pts down on the DOW


  98. given the market nonreaction, it can only mean there were no surprises. I don’t believe anyone seriously thought Bernanke was going to show his hand and the major points of Bush’s plan was leaked ahead of the speech.


  99. Looks like it’s down from here in response to rhetoric?


  100. yeah i’m with andrew. i think we’ll start to fade


  101. CFC- this morning someone thought somthing was gonna happen….The only thing that happened was institutions lightened up their positions.


  102. jkman –
    I know people who did it – the reason it made “sense” to them is that they read books like “Rich Dad” and believed Real Estate – at any price – was the answer to their dreams of wealth. I’m not defending them, I didn’t make the mistake and people have to accept responsibility for their actions. Nevertheless the “push” behind home-buying was incessant and from numerous angles.
    Jack.


  103. AAPL-I am only seeing bad news today: CNBC and AMZN.


  104. i would not be suprised if we go higher


  105. Minimal Govt action is always a good thing.


  106. rich dad… ah yes. i think we’ve all read him. and yes i think the info did screw some people. he’s smart and knows what he’s doing but the advice he gives for the most part doesnt exactly apply to the average guy making 40k a year


  107. Bush plan – nice gesture, but limited use. Will it extend to people whose loans adjust next year? Still going to cost money and who’s going to fund it?
    Bernanke – agree that he did the right thing and said “no bailout” (for now, but I can imagine the pressure he is getting); more respect for him now.
    Markets – I’d love for it to go down with the puts I have, but all the data is out and not much action. Hmm…. maybe the result of artificial month/quarter end window dressing (as Cap mentioned yesterday)?


  108. TICK and TRIN looking bullish. . could be a headfake, or that fading we saw could have been sucking in some Shorts. .


  109. dont get me wrong though. it can be done. you hear stories here and there, but for every got rich story in real estate there’s about 1000 lost everything stories


  110. Oops. not quarter end. But summer is flown by.


  111. And I can’t type… okay back to stealth mode LOL


  112. a little of subject here but i think there’s a lot of shows out there too that gave people false hope. like flip this house. i’ve seen it and people watching think if they go and buy a house, plant a few plants and put in new carpet the house is gonna go up 30k. i personally know more that a few who were inspired by shows like this and did just that. bought a house, planted some stuff, made a few changes only to realize not only did they just blow a couple grand on upgrades but also that the house gained no value or in the recent months lost value.


  113. didn’t CFC get the memo that pink ponies from the fed are going to save them?


  114. Well the DIA popped out above its downtrend channel — but on extremely anemic volume.

    Take heart shorts – I wouldnt make any adjustments today, as it really means nothing (unless of course the market blasts off on heavy volume tuesday).

    I think until we break this downtrend on good volume and break above Phil’s breakout benchmarks then I think the most positive we should be is neutral. Play some shorter-term plays to the upside perhaps, but if you are hurtin because you are short today then zoom your lense out and get some perspective/context. Its just 1 day. Watch your breakout/breakdown marks and hold tight. Those marks were made without emotion in the equation – dont break the equation with an invalid emotional response.

    I think being short when the market is going up is my least favorite and most frustrating spot to be in.


  115. jeez if you owned a home for the past 10 years and are complaining about your house doubling or tripling in that period even after a correction your hopeless.
    What pisses me off is these boiler room mortgage brokers who scammed millions of people AND the banks and big brokers. Where are they now? I should know most of my so called friends waddled in that filth for years and now whine that they can’t do it anymore.


  116. i’m still amazed as how we’re up 100+ today


  117. biodeisel- no the govt bailout is not necessarliy good for them bcuz they make most of their money from scamming subprime people. They have to sell to FNM at less than the raping fees they are usually accustomed too.


  118. Big Ben cost me $2G today (18%).

    Cash is king.


  119. Hey guys!

    Wheee, that was cool. I guess Bernanke’s plan was to bore us to death with that speech but he got my major points in so I’m happy (and the markets aren’t too unhappy either). We could have done without: “global financial losses have far exceeded even the most pessimistic projections of credit losses on those loans” but I loved: “It is not the responsibility of the Federal Reserve — nor would it be appropriate — to protect lenders and investors from the consequences of their financial decisions.”

    On the whole, I’m currently comfortable with my top call earlier and now I’m watching to see if we break out of the upper range of 13,300 to 13,400 the other way. Qs need to break $49 and I would take a turndown very seriously going into the weekend because usually we close a month out at least a little positive.

    OIH $180 continues to be a call I will sell those short on the next attempt at $180 (last stoped at $179.70)

    XLE diasppointing so far, XOM $85 puts got more expensive despite the stock dropping (always buy the opposite direction into the initial excitement!). I’m offering to take another 100 off Mr. 3000′s hands at $1.40 and then I’ll see how it goes.

    This is the critical juncture and I don’t see what’s going to punch us up between now and the close, struggling at 13,350 is not cool.


  120. I’m sick because I believe in another drop in the market, but it’s not giving me what i want.

    I never risked 5% of my portfolio except in one position, NYX, which consumes 50% of my portfolio with stock at $93, and call options that are about 20% with an ’09 and a $88 break even. Recently, I started to hedge all of this cheap OTM put options with a 65 strike on front month. I’m not selling front month to cover, because I feel wall street will eventually catch on and move this like it did with ATI under 60 and AAPL under 60.

    I have LEAP on Goldman Sachs and selling front months. Financials are not over, so they will hammer the sector, goldman with them. I’ll buy back front months before earnings, because goldman has traders that excel in volatile markets… By watching the VIX, this stock has a good long term upside. If they hold up to their name.

    I’m short oil with the XLE and hopefully XOM if it retraces, but hedging this play by shorting Jet Blue.

    My speculative play is VG.

    I’m pretty heavily short SPY (about 5%) with a hedge on JP Morgan, just incase if things start spiking up on the speeches, financials and housing are the first to rise.

    I have a weighted portfolio because I’m young and single. I dont’ have a family to support, and no one really to tell me to stop working.

    I have other positions like MRVL, and JDSU, after the stupid selling on their earnings and minor speculative plays. They’re all about 1-2% of the portfolio each.

    I feel sick because I know what’s going to happen, but I never acted on it. I should’ve covered my shorts yestarday, because I knew bush and bernanke will not say things to hurt the market by a couple hundred points. It just looks bad.

    There were so many opportunities to get out at a profit for me on so many trades, but it’s the greed that kept me in them. Now I have 18% cash, which is okay in a bull market, but terrible in a market that’s going to bottom soon. Which just adds to the sick feeling. It’s all damage control on my end.


  121. Guys, any thought on your favorite AAPL play? I recently closed my position of long ITM October and short Sep calls, my greeks were getting weird. For the second half of this “roll” is there a no-brainer here?


  122. Even if I am still bearish, I have to say that a lot of charts are breaking-out today. If we close like this, that would be a lot of bullish charts, and we might have to just follow price and not try to second-guess.
    I will look at it at EOD, but I might start buying some calls on some selected stocks and rebalance my portfolio. You can’t be stubborn in this market.


  123. So I agree with Phil that we are at a critical juncture :)


  124. I’m sorry for my rant, I just feel like euh.

    A low volume critical juncture is not where I want to be. Fate is in the hands of hedgefunds.


  125. Demetrius, it is not a rant, I understand your pain.


  126. alright i’m getting a little suspicious. who else thinks the jackson hole is a fake background?


  127. Don’t fight the tape
    Don’t fight the Fed
    Don’t fight election politics

    yes – the market should retest the lows
    yes – the fed should led speculators get fried
    yes – we should be concerned about the weak dollar

    No – you should not bet your whole portfolio on what should happen.

    ‘bend your knees” it works for skiing, water skiing, roller blading and in general is a good way to go through life. Flexibility is the best strategy currently. I was an ultra bear and made great scratch, but now I do not see the same risk/reward so I go neutral every night and let the market tell me what to do the next day. With this volatility you can easily make up for mistakes with a DD and trend reversal.

    Just my 2c. You want to make money – not be right.


  128. someday i’d like to see bernanke without his beard


  129. Demetrius you are the perfect profile of the kind of person we can turn into a better trader! You have a good mix but your position management needs work. If you haven’t yet, take some time this weekend to read the Education Section but also maybe 60 day’s worth of comments where we talk about all those issues extensively. The good news is you know what you’re doing wrong (not taking the money that’s offered to you) now you just have to really internalize it.

    A good example is my XOM play yesterday. I targeted $1.75 and then some jerk bought 3,000 at $1.90 and other people thought he knew something and the price never came down, even though the underlying kept going up. Once upon a time I would have chased it (and gotten killed this morning) but I learned that there will always be something to trade tomorrow so I either get my prices or move on. On the sell side, if I make 20% in a week, that’s over 1,000% per year so what kind of idiot am I not to take that off the table? If you remind me on the weekend, this is probably a good time to expand on that subject.

    Favorite Apple play every day is ride my leaps up and roll my caller to the (now) $140s if they hit $7. I killed my close callls yesterday and doubled my main leap.

    We have gone from hurricane watch to “tropical wave” watches. What total nonsense! I’ve been doing this a long time and I swear I’ve never heard CNBC bring this crap up before this year. Next thing you know they’ll be “butterfly watches” because we all know a butterfly flapping it’s wings in Africa can cause a hurricane over here!

    Now rooling. AXP is a laggard if we keep going, they are the least exposed of the CC companies and I so doubt they will fall below $55 outside of a major catastrophe (which the government will certainly avoid through the election next year) so the Jan ’09 $65s are a good deal at $5.55. The current $60s are already $1 and the stock has $2.50 levels, which are great to sell against. XXX


  130. Demetrius – I can understand how you feel. I haven’t always taken profits (or losses) when I should’ve. This has been the biggest part of the learning but I’m getting better, with help from Phil and others on the board. I do agree with Optrader that one cannot be (too) stubborn in this market. Nicely said Lithium Rocketbottle.


  131. Lets put it this way the stock market is the last bastion of wealth in this country now that housing has left the party. If this market tanks pointing to a recession, one- the republicans will not only lose both houses but also the presidency guaranteed. two- the democrats could be in power for a long time if they do well and could be in power for possibly up to 16 years. Clinton- Obama ticket.


  132. They will do anything in order to not let us see 12,500.


  133. Apple playing chicken with NBC, Should be fun to see how this plays out. CNBC keeps mentioning it hoping it will drop AAPL share price and give them negotiating leverage. Jobs is not that kind of negotiator, he is a brilliant megalomaniac. I bet they reach an agreement soon.


  134. EXM flying.

    j


  135. lithium – you talking about the itunes/nbc contract non-renewal?

    http://www.nytimes.com/2007/08/31/technology/31NBC.html?_r=1&ref=technology&oref=slogin


  136. lol butterfly watches…now that is priceless


  137. MA flying bought the sept 140 for 3.80. looks to go higher.


  138. Kwan

    Yep


  139. Gore – Obama

    no more clintons!


  140. You want to make money – not be right. – Very good Lith! Great commentary.

    I said this about our monetary team (Bush, Paulson, Bernanke, et al) a week or so ago – they are like contractors, they stand around and talk about how great things will look and what they can do but you come back 6 months later and they haven’t done a thing! Today is just more of the same but, fortunately, that’s good for the markets and it does make me more bullish long-term.


  141. GREAT post, Lithium!


  142. True i would love Gore, too bad he doesn’t want to help make a real change or maybe he is just waiting.


  143. Demetrius- I’ll second what Phil has said.. I’m now about half way from where you are to where Phil would likely suggest thanks to everyone’s help.. My swings are much less crazy these days, and gains while smaller in size are occurring more frequently.. a regular 10% every month beats a random 50% any day.. Cheers-Peter


  144. Phil,

    Hey now, ease up on the contractor bashing, its my primary profession :)


  145. Why does google maps lose it’s traffic data on a day like today? (was there this morning, now everything around NYC is gray.. )

    Anyway.. Off to Toronto for the weekend.. Time for the “fun” part of “fun and profits”.. Cheers folks -Peter


  146. Taking CVX 85′s for .80


  147. EXM – Flying…atlast…nice


  148. hhhhmmm i want to have a steak dinner.


  149. foto

    Have fun in Toronto. Hit the Madison Avenue Pub, great place and the owner is a good friend of mine, great guy.


  150. Phil, why the AXP ’09 $65′s for $5.55 as opposed to the ’09 $60′s for $7.60? It seems less risky with the $60′s to me, especially if you are selling the september $60′s against them. Im just trying to better understand your logic on all these trades.


  151. To add a few yucks to the board, spoof on Ms. Teen South Carolina… funny…

    http://www.youtube.com/watch?v=RQc6oBCuDXk&NR=1


  152. For new investors.

    Here is a piece of an email I sent to my brother when he wanted to get started with stocks. BTW I like him, so this was heartfelt. I pertains to stocks but many points work with all investments. Some has been borrowed for the Oracle of Options himself.

    -don’t use money you need
    -don’t confuse brains with a bull market
    -never put more than 5% in any one stock
    -generally sell if it drops more than 8%
    -sell half if the stock doubles
    -use etf’s when possible for themes (metals,biotech etc.)
    -don’t buy your whole position at once (use 3 of 4 blocks over time)
    -when in doubt sell half
    -cnbc is very dangerous (watch with the sound off) bloomberg is better
    -don’t get emotionally attached to any company
    -there are many great companies with lousy stocks
    -If the whole market starts to tank, your stocks will too (regardless of how good they are)
    -I have mainly lost money when I buy more shares of stocks that have gone down in order to average down
    -don’t use yahoo message boards
    -don’t watch cramer
    -subscribe to Barrons
    -Valueline $79 3-month trial is a very good idea (the paper version) to learn how use fundamental data
    -buying old large companies at multiyear lows almost always works if you are patient.


  153. How about Clinton-Gore, Gore-Obama, Obama-Chelsea… Poor Cap would have to leave the country!

    LOL – sorry Nadir, I’m sure you are the exception (cough, cough!)

    Mattress plays – this is where the mindless following of a simple strategy saves your ass! I’m up to the DIA $135s at $1.90 and gertting ready to cut the $133s loose if they even hint down as $3.20 is a great price. If the $136s hit $1.75 I will cut the $133s regardless and roll to those, getting (I assume) 1/2 off the table. I’m really concerned here at 13,400, especially with the Qs also having trouble at $49 but they might all decide to break out to end the day (and turn the month positive for the funds!

    Think about how many Trillions of dollars are in the hands of funds who have nervous investors and would love to be able to send them a positive note at the end of August (which is usually a bad month). I’m not saying a conspiracy but don’t you think they all might be rooting for a rally enough to make it a self fullfilling prophesy? When you were behind and you get even do you get out or say “NOW is my chance?”


  154. Well VIX broke below 23 — that bodes well.

    Id just like to see some volume here, but I guess follow-through on Monday is the most I can hope for.


  155. I’m gunning for a Bush-Bush ticket (the twin girls) in about 15 years. That would make a nice fox reality show


  156. I would rather have Gore’s college room mate at Harvard (Tommy Lee Jones) and Joe Biden because he is a loose cannon and cracks me up. On the other hand, I thought Bush would be funny instead of terrifying……..


  157. don’t put too much hope on MOnday’s follow through ;)


  158. QQQQ getting close – 48.96


  159. Errrummm… ok Tuesday then ! ;-)


  160. Phil – try thinking about the trillions of dollars that are going to flow into new energy technology over the next 20 years and then give me an email address where I can send you my biz plan.

    :) – BDC


  161. Have fun Peter! A case of Bradors would do me just fine thanks…

    AXP – I can always roll down but I have no reason (other than saving margin on the sales which, with 80% cash is a non-issue) to pay 50% more for a strike I’m confident I’ll hit. You are tying up the $2, which means it’s not earning you money elsewhere. This also makes a good, long weekend discussion.

    This rally does nothing to dampen my enthusiasm for the DIA squeeze but now we need to do the Octobers since the Fed meeting is on the 18th, a little close the the expirations on the 21st for comfort (althought that week should be mega-fun to play the short and deadly game of last minute positions!).


  162. AXP – I’m assuming no fills since the price jumped right then & has stayed – so far?


  163. Phil -

    How are you managing your DIA puts? I have quite a few and wondering if I should cut losses / or keep the hedge on (as i have a pretty long biased port.) thx


  164. I would expect very little volatility on Monday.


  165. BDC – I love biz plans! Remind me on the weekend.

    AAPL and Qs are straining, if Google can’t take out $515 it might be time to cover the downside (and isn’t 200 points plenty for one day?). I’m starting with the Oct $135 puts at $3.85 on the premise that I may as well since they will only drop .45 on another 100-points up and there is NO WAY I don’t want plenty of puts for a retest of 13,500. Plus, I can sell closer puts against it twice due to there being 9/21 and 9/30 expirations on the index puts.


  166. XOM 85 puts went @ 1.3 again – How about 3K?


  167. The Presidents response was perfect – no federal bailout. That is what the market wanted to hear.


  168. Just to make sure everyone knows (you probalby do, just not thinking about it when you type), but this is a 3 day weekend. US market’s closed for Labor Day… think about that when holding positions over this weekend.

    http://www.nyse.com/about/newsevents/1176373643795.html


  169. I dont expect any volatility on monday, It’s Labor day ;)


  170. Anyone consider the possibility that Bush was providing cover for the Fed. Fed says ever so delicately that it’s not their job to save the speculators and Bush provides the cover so that the markets don’t take the news too badly and nosedive. A coordinated approach they agreed on ahead of time that would be least disruptive and get the pressure off the Fed from the Schumers and Dodds in Congress who want to help their rich friends.


  171. Ya gotta love an ANALyst on CNBC who says ‘ya gotta jump on that bandwagon soon’

    umm… right pal. Im sold, where do I sign up ?


  172. speaking of which, why are there two september expiration DIA options? Is this normal? Are they the same kind of options contract-wise? Aren’t all options supposed to expire 3rd friday of the month?


  173. This rally is being fueled by shorts. We are not the only ones here being caught into this. A lot of traders were expecting a retest of the lows, and they have to cover now. There is absolutely no fundamental reason to be up 200 points today.


  174. phil, do we think XOM is going to pump into the close or trickle down?


  175. what do you think about MA 130 puts in teh spirit of your apple play


  176. Greg: I consider it very likely that the message fo bush/bernanke was coordinated.

    Paulson has been runnin around like a headless chicken lately — and surely Bush couldnt let bernanke be the savior of the american dream without taking a piece of that political pie.

    I just wish bush woulda practiced the speech some. He reminds me of NBR’s Gene Isenburg on earnings con-calls.


  177. AXP – nope and now that they didn’t break $59 I’m goign to wait to see if they test $58.

    DIA puts, there are .25 stop rules on September index puts while the Octobers I just roll up to a tighter level each 100 point (costs about .30 per 100) as above. Effectively, with 50 days to go, I’m always happy to gain $1 in position for .35. This is a logic that should apply to any longer position you believe in, if you have a 2:1 advantage in a roll (strike vs. cost) then it really doesn’t make sense to stay more than one bracket out of the money unless you are employing a specific spread strategy (like I had RIMM Jan $300s just to give me something to sell $240s against).

    Come on Google!

    Market Volatility – don’t forget that labor day is a holiday we made up. Other markets are open!

    Mattress plays – by the way, by definition, if you keep rolling your puts or calls at each level then the last rolll you make will be a loser and the second to last will be just about even! As I said yesterday, these are plays we make to scalp dimes and the big win is when I take of my $133s at $3.20 and swith to the $135s at $1.90, I’ve already taken $1.10 off the table so I’m risking 25% of my profits…

    Bush/Bernanke – I think Bernanke stood up to Bush, he certainly had an amazing amount of pressure the past two weeks and that Bush was simply covering his own ass by doing what he could to ease the markets. It’s exactly what I said would happen yesterday: “If Santy Clause doesn’t come down the chimney tomorrow the market will throw a tantrum but Mommy (Paulson/Schumer/Bush) will tell us that Santa may still show up on the 18th if we’re good so it’s likely to be chop, chop, chop if we don’t get a firm indication of a cut.” I got the acts right, it’s the reaction that baffles me right now but the end of month nonsense explains that.

    GOOG broke up, all is well! Remember I said it’s a real rally when Google hits $525.


  178. O.K. you all have a responsibility to hold the SPX down now. My futures broker sold 1480 calls that expire today! Show a little team spirit and sell into the close – you’ll have a lot more relaxing weekend and I’ll have a lot more fun!


  179. CREE got a nice bump today on GE rumor…


  180. I’m still looking for Bill Poole, This seems like the perfect opertunity for him to come out and say “No Way” on a rate cut.


  181. Phil,
    YHOO – in 10KP, i have 5 Oct 22.50′s (paid $2.55) against Sept 22.50′s (sold for $1.89). You think i should leave it there for now or move the Oct 22.50 to Jan 22.50′s (~2.45 now).


  182. Maybe the real play near term catalyst is the European Bankers meeting ECB on Sept 6 where they will probably cut.


  183. If we hold the rally – is the an FXI play?


  184. Dragon – there is no chance that the ECB are going to cut. They just aren’t going to increase – but absolutely zero chance of a cut.


  185. “All is well and all will be well, in the garden” Chauncey Gardener in Being There

    (those of you who remember this should get my humor)


  186. Greg

    I miss Peter Sellers. He was a genius.


  187. Phil – for day trades, what size of stop do you set? I’m finding 20% stops to be too wide to capture stock moves of less than 1-2% and tighter stops being to senstaive for hourly option price fluctuations. Thanks.


  188. this was a terrible week for me. I can’t wait to move into a three day weekend and see what happens when the real traders come back from the Hamptons.

    Plus, another 3-days’ steps into the inevitable mortgage/housing mess is three days of stepping that cannot be undone. Does anyone think we can recover?


  189. LthRB – Phil kind of reminded me of Peter Sellers saying that line in the movie, with his comment about GOOG above – and yes Phil is a genius as well.

    What I didn’t say, and the reason all is now well, is that I bought QQQQ calls to cover half my puts probably right at the top here. I also sold some long term stock so I have the cash to squeeze this QQQQ play right back to my break even point. Then I am going to get out and wait for a bottom to buy longer term calls like my original plan before I got myself trapped in my puts (PUTZ) trade.


  190. Greg – greatness!! Who doesn’t love Peter Sellers?


  191. Ritholtz has a nice take on the prezs’ timing and plan: http://bigpicture.typepad.com/


  192. XOM – I have no desire to be the next Mr. 3000, I’ll content myself with a 50% entry at $1.35 since it is questionable so far. The OIH $180s were good to sell at $5 but CVX (I have 50 at $1.18) are tricky as they are a little far away for a DD at .80 and it doesn’t really reduce my basis enough to excite me so I’ll probably leave them well enough alone and just be happy to get even.

    BX and FIG still in the toilet, interesting that they’re not buying the rally.

    The second Sept expiration is an EOQ expiration, they are my favorite months to trade the indices since you get multiple roll opportunities. Sept comes out funny though as they are only a week apart (usually 2).

    Happy 200% to the LTP! This is one of those perfect storms where the leaps rise but declining volatility slams the covers! And again, I will point out to you daytraders – I barely touched it all week!

    XOM pump? – don’t know, that’s why I don’t want to pull the trigger on my other half just yet.

    MA – we’re at the mercy of global follow-up next week. Europe had a strong finish so, if nothing blows up over the weekend, we should get more of the same on Tuesday. Barclays just bailed out a $1.6Bn fund but the BOE and the ECBs are flush enough that this is peanuts to them.

    Bush speech – yeah, I noticed that as I heard it on the radio, what makes it worse is that when he says something totally wrong and you can tell he obviously doesn’t understand what he’s saying or he never could have made the mistake he made…

    Bill Poole is locked up in that pit where they put the girl in “Silence of the Lambs”

    YHOO – you’ve got 7 weeks, don’t worry, he’s got .70 in premium and the stock is right where you want it to finish. That being said, I tried the YHOO spread and it sucks so I’m off them – some spreads just dont’t work well and YHOO has just been too dead (with the occasional wild swings) to make money on. We originally took this play on merger speculation, that’s very unlikely now.

    Sept 6th! I forgot about that one. That’s why I still had some September spreads…

    FXI – not at $151! Aside from being the 5% rule, that would be a 1,000+ point gain in the Hang Seng!

    Every friggin’ break CNBC says “there is a storm forming in the Atlantic” it’s a 7 MILLION SQARE MILE OCEAN – of course there’s a storm forming in the Atlantic – if there wasn’t this planet would be dead! This is most annoying and blatant media manipulation I’ve ever seen. I’m going picking up the XOM Oct $85 puts at $2.30 here as that really pissed me off…

    ECB – one would think not. The only reason they would cut is to bail us out but they have strict guidlines for economic targets so not as much leeway as our “do whatever you feel like” Fed.

    Dr. Strangelove is my favorite!


  193. Thank you everyone for your support and comments. I had to get away from the screen so I can refocus. I’m planning to go over the last 60 days of the forum and the education section. By the begining of september, I should be more prepared… Hopefully I can recoup my losses and end the year on a positive note.


  194. I hope Poole has the lotion.


  195. all isn’t bad Erin is back on CNBC


  196. “I hope Poole has the lotion.”

    “It will put the lotion on itself, or else it gets the HOSE!”


  197. PKX really acting well.

    j


  198. Phil,

    LTP – 200% amazing… That does not count the mattress play you done on STP ?

    I have OXPS Dec 25. Should I sell Sept 25 for .4 or Oct 25 for .9? Which one is better?


  199. Sorry, blowing you guys up w/ youtube videos today.

    This song/video is frightening to say the least, but a must see for you Silence of the Lambs’ fans… and if you have a twisted sense of humor… ;-)

    http://www.youtube.com/watch?v=9ToNZHG5KHw


  200. Phil et al -

    New subscriber here, just finishing up my first week listening in the room.

    So you guys are worried about the markets? My biggest concern now is that my head is gonna *explode* trying to take in all of this information! Seriously, the room is a blast and I am so looking forward to a weekend discussion for a few more details.

    Now to the business at hand; as MrN mentioned above, thinking about a few of those XOM 85 puts @ $1.30 to 1.35 as a small spec play?


  201. Phil,
    I have sold 50c of SPX sep. 1550 calls against 1560. What are the chances the spx reaching 1550 by expiration. Thanks.


  202. PHIL, DO YOU THINK THAT OIL WILL GO DOWN AFTER THE LONG WEEKEND? THANKS


  203. Phil
    When would you be buying puts on FXI? Any thoughts on other stocks such as NOV and DRYS?


  204. GOOG is rooting for my sold 1480 futures c! Thanks GOOG I didn’t even know you cared! (Must be that new map thing where they zoom in on my moniter!) Reminder: What was that you said Phil about that empty futures account you look at once in a while?


  205. Stops – It’s 20% OF THE PROFITS. Very quick concept. I go in looking to make 20% (this only applies to things over $1, things under $1 are gambles and you’d better have an exit strategy) so if I start at $1 and I get to $1.20 I set a stop at $1.15 (always unless I have reason to believe the pullback is baseless or a retest of the thing I though it was going to break out of). If it gets to $1.30, I’ll probably set a stop at $1.20 and then perhaps every .20 I will add a nickel of stop. For larger contracts, a straight 20% of the profits gained is fine.

    On the downside, you should never allow yourself to lose more than 20% of a full position. So if a full position for me is $5K, I would buy in $1K blocks. If the first block drops 20% I think long and hard about how much I still like it. This represents just 20% of 20% of my full position (4%) but that’s no reason to be cavalier about it. If I stop out, little harm done, I can make 5 mistakes like that before I wipe out one gain. If I still like it, I may decide to buy another round (and reduce my basis 10%) or just wait for a move either way. At around minus 30-40% (on round 1 only) I will then make a decision to stop, double down or roll the contract. Once I get into round 2 (40% committed) I then follow normal stop rules again EXCEPT, after a DD or roll, my goal is to get half off the table even, leaving me with my original bet at a lower price than I intended to pay.

    Damn, does CNBC read us? Now their talking about how Bush made 3 misstatements in his speech including the fact that he hasn’t got a clue of what a subprime loan actually is.

    Can we recover – yes but not for 18 months. Housing has to come back and that will take all of next year but the global economy is very strong and all we have to do is not roll over and die and the rest of the world will carry the ball. We need business spending to pick up on something other than M&A and share buybacks. If that doesn’t happen, we have a looong way to go.

    “It gives the media a positive spin, or it gets the hose again!”

    LOL – look at Juliet focusing on actual picks – what a pro! And from the airport no less I think.. I know you like these guys but I would really like to see some EU follow through before buying these guys at the ATH. Especially if you are thinking long, remember that this whole rally is still based on the premise that Santa comes down the chimney on Sept 18th, which is NOT what I thought Ben said (I have to read it again later). So dangerous spot with pretty expensive contracts that I’d rather sell than buy. If you like the stock and would like to own it, why not just sell the $150 puts for $5? It would cost you $5 to buy the $155 calls and then you need it to get to $160 just to get even and $165 to make the same $5 you will make as long as the stock finishes over $150.01… Agian, that is only if you don’t mind owning the stock (but then you can sell the outrageously priced calls).

    LTP – no, mattress money, although it is used to protect the LTP, stays in the STP (too annoying to move around otherwise). OXPS – .90 for 50 days is NOT better than .40 for 21 days and you are less trapped with the shorter callers.

    Welcome Stevep6!

    XOM is my favorite oil put at the moment. I wanted them yesterday at $1.75 but my best friend, Mr. 3,000, wouldn’t let me buy them so I got them today for $1.33 now!


  206. Phil, I still have the YHOO Oct 27.5 with a net basis of .8. I’ve sold the Sep 25s as cover. Should I be more aggressive and roll it down to Sep 22.5s.


  207. can we hold??? I think most of the buyers today are thinking that this rally is short lived and are going to get out before the close.


  208. Anyone pick up housing puts on the momentary rise following Bush speech? What he is offering isnt going to change anything..


  209. Phil,
    WFR on LTP – I saw you have sold Sep 60 for $2. But now it is $3.5. Looks like the caller is running away. I know the LEAP is gaining as well. I have the same situation. Do I have to do anything or wait close to expiration to roll?


  210. Phil- I’m trying to understand what you did with the DIA Sep puts this AM. Did you get stopped out of all of them?


  211. Great advise as always, Phil, thank you.

    j


  212. Little chance of much change b/tw here & close – everybody left for long weekend?


  213. Phil,

    I’m gonna have to throw Poole a line so he can get outta the hole. I have a lot of puts…..lol


  214. “I’m gonna have to throw Poole a line so he can get outta the hole. I have a lot of puts…..l”

    Nah, just give him some extra lotion


  215. lol I can’t get over that Mr. 3000 comment


  216. do you think the long weekend with everyone driving around in their big boats and G5s would spike up the price of oil in the following weeks?


  217. I bought XOM SEP 85 this morning @1.30 sold @ 1.65, bought again @ 1.25 should I hold them for the weekend? I only own 10 of them lol….


  218. SPX all-time high in 3 weeks? Well let’s say the Fed decides the economy needs emergency aid and lowers rates .5% – who are we jumping into? The guys they are bailing out? The energy sector that’s making us broke? Maybe retail and manufacturing but if so much damage has been done that the Fed needs to step in, I’m not sure I’m going to be buying companies at the ATH, that’s usually a level we buy at when things look good.

    To put this into perspective. I’m sure many of you know a home you looked at a couple of years ago that is now 20% cheaper and you still don’t want it. If the Fed cuts half a poitn, will you run out and pay the top of the market price? Why should stocks be treated differently by rational investors?

    Oil – yes I’m playing for the long weekend to be a dissapointment but also I think there are too many barrels of oil on order at the NYMEX so I’m willing to roll to October if next week doesn’t work out (and then November). Hopefully I’ll be right before I have more than 3,000 contracts!

    FXI – rather than buy puts, which are very expensive, I’m selling calls. This is not for everyone due to margin requirements but they are willing to pay you $5.22 for the $156 calls. That’s $7 over (the magic 5%) the ATH.

    Futures – you have to bring that up on a good week? 8-)

    YHOO. That’s a .80 basis after making money off the caller? Ouch! Nasdaq 2,600 will be a tough mark and I can’t see YHOO leading the charge up. They’ve barely budged in the current rally. If it were me, I’d look to get out even by buying the Apr $25s for $2.10 and selling that amount plus 1/2 of the number of Oct $27.50s of the Oct $22.50s at $1.60. That effecively takes you $27.50s off the table at just over the premuim value of the $22.50s and it shouldn’t cost you more than .60 to roll 1/2 of your calls down if necessary to cap your loss at $1.55 (per total # of Oct $27.50s) per contract. Since you are collecting $1.35 in premium on that sale, you can’t lose much more than your current .80 contract value and certainly less than you can lose if you spend another .40 to roll down and that doesn’t work.

    Very strong show, if I were manipulating the market I wouldn’t let it drop with just 1 hr to go and 75% of the traders are gone and the ones that are left are too junior to have been instructed anything other than steady as she goes. Of course, computers make that logic slightly flawed as it’s also a good time to freak people out but if I were trying to panic the markets, I would have picked my spots after Ben or Bush, not into the close where I can get wasted by a gap up on Tuesday.

    WFR – blew through my stops and they are too volatile to leave uncovered anyway. I’ll be damned if I’m going to give him $2 (3%) in premium and give up $3.50 in downside protection ahead of a weekend. If I’m going to capitulate, they have to break $62 with authority.

    DIA – I got out on the rise but rolled some up as well. Going into the weekend still 60/40 bearish as I still have to protect my upside calls.


  219. I’m holding my CVX ’85′s basis .98 and OIH 180 callers into the weekend. Gotta go for an hour or so, you all have a great weekend.

    Phil, I’ll try and touch base with you this weekend sometime, I’ve been busy sorting out messes from my last vacation and preparing for next weeks getaway at the same time.


  220. Phil
    Thanks for the insight. You represent the human side of capitalism.


  221. i’m just doodling with lines on my SPY chart…. If they do dump, technically speaking, it looks like it’ll fall hard.


  222. Poole – be careful or you might get attacked by Karl Rove wearing a dress and one of those night vision things! (you don’t really think he’s gone do you?)

    Big Boat weekend – that’s the annual theory but I didn’t see it last holiday (and it was a very nice weekend) and I strongly believe people’s habits have changed. I think it may be an all-round disappointment – for retail too.

    XOM in and out – THAT is the way to play it! Well you have a 60% profit on 10 so far, that’s about $600. I don’t mind risking a bird in the hand if I have a better than 50% chance of getting 2 in the bush (not that one) but since I can eat one bird and get 80% of my initial investment off the table, if there really is 2 in the bush I’ll still get 5x$3=$1,500 plus the 5×1.45=$725 == $2,225 vs my max value of $3,000 if I risk getting back to $1,000 or less by letting them ride.

    In other words: “When in doubt, sell half!” Iran or Korea could go nuclear, refineries could shut down, a butterfly could flap its wings, the dollar could fall, Nigerian rebels could come back from summer vacation… If you average over 60% a day on trades then there is no reason to use this one to bump up your average for the year but, otherwise, how silly to blow it!


  223. DDay – boy do I want your vacation schedule! Talk to you later.

    Thanks ash!

    SPY Hard – this is the best set-up for a 1,000-point drop I’ve seen in a long time…


  224. i cant believe how bored i am. i’m hoping for at least some sort movement


  225. Phil,

    Thanks for your advise. I learn something everyday. You are just like a teacher to me.

    Have a nice long and safe weekend.


  226. AAPL is interesting they have big announcements on Sept 5, and ever since that GS analyst recommended buying them on Wednesday morning, they have gone up very hard. Wondering if I should prepare for another gap up in AAPL on Tuesday… I am not holding anything AAPL now, but could buy some calls… Any advice?

    Phil, what would be your play?


  227. Demetrius: We may just squiggle our way right to financial armageddon ! oh my !


  228. DRYS & EXM really happy.

    j


  229. Phil-You are too funny…The only problem is now I actually have this whole wacked out scenario of Poole in hole w/lotion and Rove wearing a dress and night vision….Its sick… Well I have to go, I’ll catch up with you guys later nothing could happen in the last half hour anyway……yea right….lol


  230. Phil be the bully and rock the boat! lol the volume is so low!!


  231. djczing lol tell me about it.


  232. these agressive upticks are sketchy on the S&P


  233. Anyone else itching to buy puts at close?


  234. That roller coaster analogy was great


  235. I am bearish on the economy, but at the same time I’ve been hesitent to enter into more short positions due to the upside risk of a cut Sept. 18. However, the more I think about it, I really do not see Bernanke cutting rates at that meeting. He has made it clear he will do everything he can to make sure financial markets function properly, but he is not going to bail out real estate speculators and lenders. I don’t think the data he looks at is bad enough yet, to warrant a cut on 9/18. I do think he will eventually have to cut, but I believe it’s still too early. Fed funds futures pricing in 100% chance of a cut is a total joke, in my opinion.

    I don’t think the Dow and S&P can approach all time highs in the meantime, and if they do, it’s a shorting opportunity. Actually, it’s a joke we’re within 4.5% of 14,000.


  236. bmb, you just reminded me, I am not even sure whether to go long or short into the weekend, come to think of it. I’ll just stay neutral.


  237. bmb,

    I got some qqqq puts, now I’m leaving for real and guys don’t forget if you live in a state with mega millions go buy a ticket. Its something sick like $350mil thats even a lot of $$$ for Phil.


  238. so tuesday are we going up or down?


  239. I think GM is going down. Sept 30′s are only .60. I’m speculating with that…


  240. I’m thinking we’ll open so low on tues, I’m bailing out of XOM@1.60… I’m taking my profits quick…. Time to slowly build back the empire boys!


  241. Jordan,

    IMO- I’m going long on some Sept calls. I’m going to sell half into the run-up, if there is one, and am going to hold the other half for the announcement. I’m a longer term bull on apple, thinking that they are going to close the year around 200. I’m playing the announcement news soley because they are still 10 pts off of their all time high.


  242. has anyone with optionsxpress tried the ‘play trading’ or whatever its called. is it worth looking into? seems fun but thought i’d get a few opinions on it


  243. when is the announcement? the 4th or 5th?


  244. last 10 mins drops on index before closing… FXI nice drops..


  245. SPY heading to 147.1?


  246. VIX jumping on index drop – Phil is this the reversal signal you are looking for?


  247. Bored – I know, it has been a quiet couple of days. I just can’t get a clear sense of direction and the hedges are working well so it’s not logical not to watch and wait but that doesn’t mean I like it…

    UNH broke $50, that’s very nice.

    ABX, NEM moving, not a sign of stability into the close overall.

    95% upside volume and 6:1 advances to declines. This is very irrational as we had the opposite on the down days. That means, other than perhaps 10% of the stocks on each side, 80% of the stocks are being randomly bought and sold with the markets. I would premise we use this week to hunt out the pattern breakers than were up on the down days and up on the up days as they must have some amazing support!

    Have a good weekend everybody! I will be in the pool at 4:01…

    AAPL, I am 50% hedged and I dumped everything other than my ’09 and ’10s. I still like the leaps around $150 as it’s hard to imagine you can’t sell enough calls to cover them in 16 or 28 months.

    Someone punched the buy button. Going for 13,400 and holding Nas 2,600 and S&P 1,480 (dare we hope 85?) is smart when we’re this close. It’ll be the topic of conversation in the Hamptons.

    I saw a video of Bernanke just after the speech and his body language suggested triumph so I very much doubt he will back down just 3 weeks later without some major situation developing. This was his defining “I’m not Greenspan” moment and the markets are loving it so far, although I’m really worried that what Ben thinks he said (suck it you dopey speculators) vs. what traders think he said (cuts are imminent) may cause a bit of trouble on the 18th (3 days before expiration!).

    Neutral is nice. Especially on long weekends I just want to be able to enjoy myself and not have pressure on Tuesday (and that’s a stretch day so light volume) regardless of what the market does. Then it’s a short week by Wednesday and that’s that… Meanwhile, before you know it, your Septembers are expiring, which is why I have almost none and sold against almost all my leaps now…

    $350M? Wow, how many numbers? If it’s 56 like the old one was that 175M to one so picking every number would cost $175M and return (even assuming a split jackpot) $175M + (50 x 250K second prize) $12,500 plus about $5M in other prizes. That’s a pretty good ROI with the possibility of a double if you’re the only winner. The chances of 3 people winning a one in 175M to one on the same day are so slim that bankruptcy is the least of your worries if you are that unlucky!

    Tuesday – I have no idea!

    Take care everyone – I’ll be around on the weekend but several parties on the calendar.


  248. MrN – Serious love from XOM. SPX down .5% in 15 minutes. Apparently someone else sold the SPX 1480 contracts as well!


  249. have a great weekend everyone !


  250. SPY drops one point in last 10 mins .. wow ..


  251. Have a happy, safe weekend everyone.

    j


  252. DW – YESSSSSSSSSS! For once the whole world cooperated – President, Fed, SPX, metals, oil. But… for those putting their bigger investments into the next life – It DOES get better than this.
    A disciple of Jesus.


  253. 6:1 advances to declines – I think that was mostly due to shorts covering. Sounds like the most logical argument being that no one knows about anything.

    XOM – I’m not going to complain about profits, it was a small profit… But if we start getting these types of headlines: http://www.livescience.com/animals/060508_butterfly_bad.html …Who knows what could happen?.

    I not going to let greed control me anymore. I’m already short on oil itself anyway, it’s going to be fun next week.

    Cheers gents, and my ladies.
    Have a beautiful weekend.


  254. wait that was the exact opposite of the article i was looking for.


  255. HAVE A GOOD WEEKEND EVERYONE


  256. Guess the subprime speculators wont need to be “saved”

    http://online.wsj.com/article/SB118851838516214091.html?mod=todays_us_page_one

    Investors played a big role in pumping up home prices during the housing boom. Now, they account for an outsize proportion of loan defaults, mortgage bankers and builders say.

    A survey by the Mortgage Bankers Association found that mortgages on properties that aren’t occupied by the owner — mostly investment homes — account for between 21% and 32% of the defaults on prime-quality home loans in Arizona, California, Florida and Nevada, states where overdue payments are mounting fast.

    Defaults were high on both prime and subprime loans, those made to borrowers with shaky credit histories.

    The four states were among the favorites of speculators during the housing boom. When the market was hot, many speculators bought homes hoping to flip them for a quick profit. But now that home prices have turned lower, that strategy is backfiring.

    As a result, some investors have “simply walked away from their mortgages,” said Doug Duncan, chief economist of the MBA, echoing recent comments from executives of Countrywide Financial Corp., the nation’s largest mortgage lender.


  257. GM – good call (or put as the case may be)!

    OXPS play trading – I did try it and I was very annoyed that they force you to buy at the ask and sell at the bid. Gives you no idea of actual performance. I don’t know why they can’t just give you the next sold and be done with it. Still play trading is an excellent tool for beginners, just not so great for testing strategies

    VIX – armeggedon signal on the markets is when the VIX DOESN’T jump up when the market goes down. I think we could get a good early warning signal if we quantified the VIX to Dow reaction (ie. -100 points of Dow = +1.5 points of VIX then 1.45, then 1.4) and watch for the VIXDex ™ to narrow which would indicate a market turn. We’d need to track the abolute VIXDex as well as the 2 directional indicators. I don’t know if it would always work, but I am pretty sure it would work right now.

    Have fun Juliet – wherever you are!

    Nothing like getting it on both sides MrN!


  258. CY Jan ’10 $25s at $5.80. Can sell $25s for .85 but I think It will pop. XXX on Monday.


  259. JUst an FYI for the PSW community – trading doesn’t resume until Tuesday


  260. the probability of multiple jackpot winners substantially reduces the jackpot expected value

    theory: http://www.stat.umn.edu/~charlie/lottery/

    I worked in this problem during college on a test one time. I had so much fun with it I was actually upset when the prof called time.


  261. I think I’ve got the “Hedge” part down, I’m within $100 (up)of where I was last Friday. Being over 80% cash could have something to do with it.


  262. for all you lottery buffs like me out there I analyzed your EV on a $1 ticket purchase in tonight’s Mega Millions (lump some jackpot est at $194.4M). The wild card is always how many tickets they sell for that particular drawing, which is unknown, but 50-100 MM is a likely number.

    tickets sold: EV (no tax) / EV (with taxes on top three prizes)
    50 million: 1.145 / 0.785
    100 million: 1.026 / 0.707

    If you win, you will likely pay taxes, and writing off $10 in lotto tickets will be negligible so I argue the second EV numbers listed are the prescient ones.

    as an example to showcase the maximum possible return I calculated the EV if only 1 ticket was sold (i.e. no multiple winners possible) — 1.288 / 0.878. I’d say it’s still a suckers bet. Craps with full odds pays 0.995, you’d be better off gambling there.

    this particular lotto cracks into positive EV territory with a take-home jackpot around $280-290 MM, for the record.

    (ps – RE: taxes – we were pullin’ for ya girl …. to bad you’re off to the pokey now)


  263. No trading until Tuesday?!? This is an outrage! Tell those people to get back in here — turn those machines back on!

    Poisson distribution – I find that to be a pessimistic view of things because the underlying assumption is that once you win then it is just as likely that someone else will win. Of course that is the mathematical case but in reality, if 100M people played for 10 weeks and nobody won, although the odds are still 1/145M that the person standing next to you in week 10 will also be a winner isn’t quite 58%. As I said though (based on me cheating and guaranteeing a win vs. the 58% chance of someone lucking out), I would expect a second winner but the odds of 3 winners in the same week is 1.58% and, like I said, if you get nailed by those odds the universe is out to get you anyway! 8-)

    Actually, at $145M/1 I wouldn’t consider it as worth the risk but at 1/175M it is considerably less likely that there will be 2 winners, yet alone 3 so I’d be playing the probably better than 50% chance of getting a double against the virtual certainty of a split and a 5% profit against the 0.5% (or less) chance of a 3 – way, which would still recover about $125M of my investment.

    Taxes are a big issue, I suppose it would be an interesting argument with the IRS that I purchased $175M tickets as an “investment” and thus it should be my cost basis. It would be a fun case but if they allow treasure hunters to deduct then I think I can win it! The real trick to this whole thing is getting enough pencils to fill out 17.5M forms and making VERY sure you cover every number. Standing in line waiting for the 7-11 guy to punch your tickets might take a while too…


  264. Oh yeah, one other bonus: 7-11 takes credit cards for lottery tickets so that’s 175M frequent flier miles to get you out of the country in style if you lose!


  265. Phil,

    If you get all combinations of lottery tickets, you are forgetting that there are secondary and tertiary prizes as well for gettin 5 of 6 numbers and four of six numbers (at least in the florida lottery, there is) With all those tickets imagine how many 5 of 6 and 4 of six winners you would have, aside of course from the Jack-pot


  266. Khaaaaan! I can’t believe you think I would forget something like that! Note my 3:59 post specifically adds in the secondary prizes. Hey, I get paid big money as a consultant NEVER to miss stuff like that… 8-)


  267. LOL

    You are indeed the Master of this House


  268. Phil – re: Stops – It’s 20% OF THE PROFITS – just want to confirm that the concept that you described applies for day trades. Are you scaling in at 20% increments on day trades? I was thinking DD at most with all the other rules you described.


  269. Phil, when do you sleep????


  270. 4 people won the MegaMillions jackpot. Such good luck, yet bad luck to have to split it 4 ways. I got the MegaBall and 2 other balls right- which wins $10. I feel like it should be more.


  271. I bought $10 worth of tickets, and didn’t hit a single number right across all 10 tickets. How unlucky is that?!??!

    I guess I could have just given my $10 to Andrew and saved us both some time.


  272. Day trades – I am not a day trader. However, I am not adverse to taking profits during the day.

    There’s a lot to be said about day trading but most “day trades” I do (trades I intentionally believe will not remain active at the end of the day) are momentum trades. In a momentum trade the stop rule is irrelevant as I usually expect to make no more than 20% so once I make it I am usually half out – whether it actually pulls back or simply slows down (unless it’s at resistance where I may choose to watch it.) As a rule of thumb I would never make a 2.5% commitment to a mo trade regardless as I’m not that kind of trader and I think people who are are nuts.

    The mattress plays are often day tradeish because they are momentum plays on a volatile market BUT they are also insurance plays so my in and outs there are scalping dimes but my underlying strategy is to stay protected. This is very complicated but let’s say this:

    I started the day 60/40 puts and protecting a 90% bullish (of uncovered positions) portfolio and we gapped up, giving me a big win on the open positions and a modest win on the DIA calls and a maybe 20% loss on the DIA puts. Since I’ve got about $400K in uncovered calls and stock (not counting the DIA calls), mostly options and they gained about 20% too, the loss of 20% on my DIA puts was not a big concern.

    The purpose of the puts is to serve as catastrophe protection. If we get a 500-point drop that blows my coverage on my $1M of covered calls, dropping them about 20% in value before I can re-cover them, my $200K worth of DIA puts are likely to pick up maybe $400K, keeping me not too far out of neutral. For any other market moves, their purpose is to keep around even.

    The stop rules under mattress plays are the closest I can come to having a firm way of saying: Try to stay no more than 50 Dow points out of position and give yourself an average of no less than 30-45 days in length. We can debate the merits of those figures till the cows come home but they work for me.

    After that, with mattress plays, like any mo play, I have to make gut decisions. As I was walking out the door at 9:48 I pretty much laid out my expectations of a Bernanke disappointment followed by a Bush save so I did not dump out all my calls on the dip I expected and I did not dump out of my puts on the recovery I thought would be reversed.

    You’ll notice that the XOM puts went down to $1.30 first thing in the morning and, even though XOM went up another buck, they never got cheaper – this is where Rule #1 “Always sell into the initial excitement” comes in as it applies to buying the other side in this case. That kind of play is by far my number one mo play, a stock that runs the wrong way (vs. my expectations) and throws the puts or calls into an excited state, which allows me to buy them cheap or sell them expensive.

    OptionDragon wrote an excellent comment about this once as it applies to his strategy re. earnings plays after the fact but I can’t find it. 8-(

    I could go on for hours about this but better you ask questions so we can fine tune it from here!

    Sleep – I went to bed around midnight and woke up at 4:30, got some work done and took a 40 minute nap before my lunch meeting today because I”ve got a party at the house today and will probably be up all night so that’s like 5 hours right there!

    MegaMillions – there must have been a LOT more than 100M attempts then because the odds from that sampling would be astronomical of having 4 winners. I’m sure they’ll all get over the disappointment of “just” winning $80M each…


  273. catching up on comments… you guys talking about the lottery are hilarious…..let’s do a PSW lotto pool, and with all the players on this lot calculating every possible scenario there’s bound to be a win! dday can probably manage it until the investment club takes over :)


  274. One more important point about stops. If I enter ANY position, even a 2010 leap, and I make 20% in a day or two, I will either get it off the table or get half out or cover it. There is NO plan I ever have that projects I will make 40% in a week when I enter a position and I certainly don’t go around EXPECTING to make 96% in 2 weeks (as growth at the same rate would compound) or 174% in 3 weeks or 284% in a month so I consider making a quick 20% VERY lucky and I take at least part off the table (Rule #2: “When in doubt, sell half).

    If I only made a 20% entry and I make 20% I do NOT generally add to the position anymore. Why would I chase it and become my own bagholder? I often make more money on positions that go poorly at first and cause me to DD at a lower rate and THEN start to go than I do when they go right right away.

    CCJ is a good expample of this as I had the Jan ’09 $60s at one point and now have the Jan ’09 $40s, which finally moved on me so of course I covered them but look how I got there:

    6/6 rolled from $60s for +$2
    6/26 – adj -$2 bb of July $55s
    7/16 combined with 5 more $55s at $2 = $1.40 basis
    7/16 adj +.65 added 5 at $3.10
    7/16 adj – .45 bb of $45s
    7/23 adj +$1.80 roll from Jan $55s
    7/24 adj + 2.25 roll from Jan $50s and Jan $47.50s
    8/16 adj – $2.25 exp of Aug $40s
    8/21 adj + .60 roll from Jan ’08 $42.50
    8/29 adj – $1 bb of $40s

    All that adjusting left me with a basis of $6.70 on the Jan ’09 $40s and they just shot back to $9.20 so I sold the $40s at $1.80 to protect my $2.50 profit. That’s following the same concept on a leap, I gained more than 20% so I switch from my DD (or just adding here) and rolling strategy to a protect my gains strategy from this point forward. I may take little gambles here and there by adding or subtracting covers but, in general, I’m on my way to my target 50% annual gain on an LTP position and now it’s ready to move to that portfolio from the STP, where it can go into a far less active status.


  275. Looking at those notes, this is a very confusing one as what I was doing was consolidating all my CCJs to less contracts in this one, longer position (although I still have some dead Sept $50s that weren’t worth moving). So that means that the 8/21 note of a roll from the Jan ’08 $42.50s for example reflects the cost that was paid above the liquidation of the $42.50s spread across the total number of ’09s…

    That’s why I initiate LTP plays in the STP, my goal is to try to guess the bottom but, if I’m wrong, I have plenty of cash on the side for each position to chase it down (assuming it makes sense to). That’s also why the LTP is littered with fairly small positions – if I actually time it dead on and they start to take off on me, I really don’t like to buy more so I just end up with my first round until I’m ready to make a big adjustment, usually by rolling up or out to the next year.


  276. hi phil,
    thanks for the weekend lessons, i love them!

    questions:
    the CCJ example is difficult to understand. if you are able to explain the following line in more detail, i might be able to figure out the rest of it:
    6/26 – adj -$2 bb of July $55s

    regarding selling front month contracts on naked positions: could you please speak to the parameters of timing this properly? i just began doing this last month, and did very well on most of the contracts sold, but got killed on 2 of them, and this month also due to the crazy swings taking place. once it goes against me in a big way, i think i should wait for the time decay to occur, or for another wild swing in a favorable direction (example of this is WFR), but it doesn’t always work. how can i improve on this strategy?

    thanks so much for all you’re teaching me!!
    windy


  277. Phil

    I too have the Jan ’09 CCJ 40′s. I sold Sep40′s against them on friday and will take appropriate action if at expiration, CCJ is above 40.
    Are you tentatively beginning the new LTP you talked about before you went on vacation (COH, AXP WMT)
    I like HPQ, XRX, MT as well as the ones you have in your LTP but have not initiated any positions


  278. CCJ – that’s an adjustment to the basis I make when I buy back the July $55s. Sometimes you’ll see me book a buy back for no profit because what I do is I shave $1 or whatever off the basis of each ($1 off the price someone paid me for a call and $1 off the price I paid for the postition) so I can properly track my profits on the leap over the long term.

    This is a very important thing and the reason I started keeping spreadsheets is I need to track in my leaps how they are doing. It doesn’t do me any good to see the Apple Jan ’09 $140s have a $19.60 basis 6 months from now when I’ve sold net $10 worth of calls against them. If Apple is flat the time value will take out about $8 of the value and I’ll see a basis of $19.60 against a $22 value and it will be very hard to remember that it’s an excellent performing position I want to keep.

    By applying the profits back to the basis rather than to cash I would see that I have a $9.60 basis against a $22 value so I won’t worry if it drops $3 as I would if it turned red. I would also be reminded constantly that I have $12 of profits to protect in that position which will cause me to be more properly conservative in my sales and I will also be alerted when I have made too much money and need to start rolling or taking some off the table.

    Each month I look at the net profit (from my adjusted basis) I am protecting on each position and decide whether my future expectations are in line with what I’ve made so far or if I face diminishing returns. If the latter, that’s when I tend to move on. Also, watching changes in my LTP nets is one of my favorite market and sector indicators for various market turns ahead.

    Timing front months – this is the biggest mistake people seem to make following my stuff. They “get” the LTP strategy but they don’t get that you can’t just apply it to any old position. Timing is literally everything once you’ve selected the appropriate stock (which is everything first) and I don’t really have a formula other than “You’ve got to know when to hold them, know when to fold them, know when to walk away, know when to run.”

    The simplest thing I can say is you have to throw out your mindset about options as you are not playing options when you sell in the same way a casino isn’t playing craps when they run a craps game. You are running a business and your business is selling premiums. You rent space (or really time but then it’s all relative) in, say, an Apple ’09 $140 at $19.60. That is your business investment.

    You then entice someone to play against you and you sell the Sept $135 for $7.40. That person is making a wager that Apple will finish higher than $142.40 on Sept 21st and he thinks you are betting that it won’t and the problem you have is you think you are betting that too but you’re wrong.

    You don’t really care if Apple finishes even at $145 because, no matter what happens, you get his $4 premium. As long as you can roll your caller when he has little or no premium to another guy who pays you a $4 premium and (assuming you skip earnings months) you do that 11 time in 16 months, you will collect $44 in premiums against your $19.60 investment. This is good, old-fashioned commercial real estate style profits – the kind you can go to sleep at night with a 95% certainty they’ll be there in the morning.

    That’s why make those plays, while I would not like for Apple to go down and it would be nice if it drifts up to $160 or so so I get my $19.60 back in Jan ’09, it’s all incidental as long as my main business plan works out, which is to make $4 per month in premiums.


  279. I’m not scrapping the LTP but will be resetting the Free Picks portfolio back to $25K for those who like to play there and starting a new $100K portfolio with Happy, probably called the Happy 100. The $10K portfolio will be reset on this expiration period as well so new members will have $10K, $25K and $100K to chose from. Anyone with more money than that shouldn’t have much trouble picking and choosing whatever strikes their fancy from STP and LTP positions I take up or adjust.

    Raffy – you sold the $40s too? Hey great minds think alike!


  280. Actually Raffy is a good example of the RIGHT attitude for an LTP trader. We’ve endured considerable pain on this position and rather look at the recent 10% run and say “all right, it’s going to break out and we’re going to be rich” we say “thank goodness we’re back on track and I am thrilled to collect $1.80 for the month.” The stock is up 10% since the 21st and our logic is if it goes up another 10% we really don’t mind giving our caller their money back plus $2 because we’ll be sellling the $45s for $2 and we’ll be $5 in the money on our leaps. Any finish between $39 and $41 would be just perfect for us because either way we’re going to be rollin’, rollin’, rollin’ for 15 more months.


  281. Phil,

    I’ve redirected a couple of domain names that I own to PSW (until I can sell them, hopefully). I didnt think u would mind.

    http://www.ragingbullmarket.com

    http://www.grizzlybearmarket.com


  282. Phil or anybody.
    I don’t understand your comment about SPY. Could you explain please.
    Thanks
    Don

    #
    Phil
    Posted August 31, 2007 at 3:27 pm | Permalink

    DDay – boy do I want your vacation schedule! Talk to you later.

    Thanks ash!

    SPY Hard – this is the best set-up for a 1,000-point drop I’ve seen in a long time…


  283. “Dick Cheney once jokingly referred to himself as Darth Vader – such was his dark reputation with the mainstream US media. With the departure of Karl Rove on Friday, George W. Bush’s electoral mastermind, the US vice-president is seen as “the last man standing” in the administration.”

    Sorry cap – he said it himself, not “liberal” bloggers. Also, Cheney is consolidating power.

    And we are DEFINITELY going to be attacking Iran soon. So just get used to the idea (and adjust portfolios accordingly).

    Phil mentioned above there is “simply no way” to squeeze any more cash out of this commodity bubble for the Top-1,000. It simply has run too far. The problem is – that isn’t true – there is one, and only one way. Look forward to it in the next 6 weeks.


  284. Phil- in your 3:12 comment on Friday you mention the “magic 5%”:

    >> FXI – rather than buy puts, which are very expensive, I’m selling calls. This is not for everyone
    >> due to margin requirements but they are willing to pay you $5.22 for the $156 calls.
    >> That’s $7 over (the magic 5%) the ATH.

    This seems not to be the 5% rule from the Portfolio Management strategy. In my PSW back-issue reading, I think I’ve seen reference to it as well, but haven’t yet come across a discussion of the topic (although there is one mention about it being a book in itself). Can you explain what you meant?


  285. Wow i never realized how much material there is on this site on just 2 months worth…. I’ve been reading for hours today and only on July 10th. I’m definately not going to be able to finish this considering it’s my mothers birthday today, my own tomorrow, and my girlfriend’s celebrating her’s on the 3rd.


  286. This is the part I’m trying to wrap my arms around. You sell that call for $7.40, stock goes to $145, you buy it back for $10 for a $2.60 loss. Then you sell the Oct $140′s for $9.00, stock goes to $152, you buy back the call for $12, for a $3 loss. etc, etc, etc.

    Now “WORST” case scenario, this repeats all 11 times you do it over the next 16 months (avoiding earnings months). Meaning, you rack up about a $30 loss (roughly $2.80 * 11) from buying back callers at a loss, BUT, if that’s going on, the stock must be well over $200 by then, and your LEAP is probably worth $60 or $70 by then, versus your $19.60 basis. So ~$30 loss + ~$45 gain ($65-$19.60) = $15 gain on $19.60 basis, or 77% return?

    Bottom line: you don’t care about a small loss on your caller every month, since it means you’re kicking ass on your LEAP? Is your way of describing it and my way, just two ways of saying the same thing? Or am I on another planet here? I really appreciate the teaching. Thanks.

    PHIL
    You then entice someone to play against you and you sell the Sept $135 for $7.40. That person is making a wager that Apple will finish higher than $142.40 on Sept 21st and he thinks you are betting that it won’t and the problem you have is you think you are betting that too but you’re wrong.

    You don’t really care if Apple finishes even at $145 because, no matter what happens, you get his $4 premium. As long as you can roll your caller when he has little or no premium to another guy who pays you a $4 premium and (assuming you skip earnings months) you do that 11 time in 16 months, you will collect $44 in premiums against your $19.60 investment.


  287. from BBC aug 31

    Barclays says that a “technical breakdown” in the UK’s clearing system forced it to borrow £1.6bn from the Bank of England.

    Barclays explained that it was forced to tap into the Bank of England’s emergency credit line because a technical glitch meant it discovered the shortfall in its finances too late in the day to borrow from another high street bank.

    It added that the malfunction affected an electronic trading system on Wednesday afternoon.

    The Bank of England has confirmed to the BBC that £1.6bn was borrowed overnight from its standing facilities on Wednesday and repaid the next day, but it will not confirm the identity of bank concerned.

    full story http://news.bbc.co.uk/2/hi/business/6971731.stm


  288. Thanks Nadir!

    Spy hard – that was me agreeing with Demetrius’ comment saying that he was charting technical indicators showing that the SPY looked like it could fall hard. You see, there was a movie called “Die Hard” and Spy Hard is sort of a pun on the name of the movie using the content of what Demetrius said to turn around and make a pop culture witticism that plays on my habit of giving a quick topic at the begining of a paragraph to indicate which previous post I am replying to… 8-)

    Iran – the only way we go to war with Iran is with a draft, so adjust your kids’ passports accordingly! It’s a fun theory that Cheney is completely psycho at this point but I just don’t see it happening in this evironment without clear provocation. Look how hard they worked to make Iraq happen, it’s not worth another 20 people’s carrers to “build a case” for a war in Iran. The basis for this rumor, which was really just floated to spike oil, was simple war war game planning that is done regularly of course:

    http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/09/02/wiran102.xml

    Unfortunately for us, when we look around and say “who would benefit from this environment of fear and uncertainty”, it turns out to be the 2 people who occupy the top 2 spots in our government…

    5% rule – quick explanation is that the market and individual stocks tend to move in 5% incriments at which point you encounter major resistance. You get minor resistence at 2.5% and even a touch if it at 1.25% and at each move like that you can expect a 20% pullback without breaking the trend (over 33% retrace usually indicates a break of the trend). The reason for this is the heavy reliance on program selling which forces bosses to “pick a number” which they convey to a programmer who must also pick a number for the program that is used by traders to execute buying and selling strategies. At that point a combination of the human nature to pick round numbers and lazy programming kicks in and causes most programmed selling to execute at similar levels.

    Then you play these programs against each other and the odd ones cancel each other out and majority rules give you a pretty firm average pattern of movement. Now that’s all well and good but the problem is 5% of what? There’s a certain art to tracking interim movements but going back to what I just said and applying the logic to FXI, I’m saying that I would expect at 5% over the ATH that program selling would kick in and make it difficult for it to break that level. Even in this crazy week you can see some interesting 5% activity on FXI:

    Monday: FXI gapped up from the past Friday’s close at $143.64 but the major pattern had formed 2 weeks before where the index had drifted down to 125, took a 3 day spike below it and reversed a downtrend on heavy volume at 120 (touching 111) and here’s where the art comes in. Looking at the one-year chart I would throw out the spike and use $122 as my support point, based on $110 acting as a ceiling in Q1 and a floor in late Q2. From there the stock ran up to test $142 in July, bouncing off the 30% mark at $143 which caused it to retrace 38% (a fibonacci number) of it’s gain from $90, back to a pretty perfect $122. When you run into a long calculation that supports the shorter trend you see, that’s probably the right number…

    So let’s call $122 our magic break-out level. That means after the 17th, I would expect to see some confirmation of 5% moves.

    $122 * 5% = $128.1 so we would expect resistance there and the stock ran right up to open there on the 20th and dropped back $1.10 for the day (20% retrace). The next day it pretty much flatlined at the 5% rule, which we consider a bullish indicator and on the 22nd it gapped open to $134.16 (4.73% over 128.01) and closed at $137.92 which was up $3.76 (2.8%) for the day and up 13% from 128.10 but up 9.967% from our main base at $122.

    Now we’ve hit the 10% rule (it’s the same rule, we just rename it to emphasise the move we see) so we expect a pullback but finishing the day at the 10% line is a bullish signal. The next day (23rd) we see a gap open to 138.67 but it pulls back to 135.81 (down $1.11 from the previous close, not quite a 20% retrace and only a quick one at that) and we finish at $138.01, still hugging the 10% line. This bodes well.

    The next day the stock shoots up to 144.19 (up 4.47%) before pulling back to $143.64, which is up 17.73% from $122 now so we broke the 2.5% mark for the day and the 17.5% mark for the major move without a significant pullback so still bullish (nobody of consequence has hit the sell button yet). This was a Friday so it’s a tough call to hold but the 27th, the stock gapped up to open at $147.90 (up 21.3% from $122) and shot up to $154.54 (up 26.67%) before pulling back to finish at $153.07, up 25.4%.

    At this point I think I got uncomfortable with it breaking 20% without a consolidation and started selling the $150 calls. The next day we got a huge gap back to $146.87 at the open (-6.2%) and finished the day at $140.40 (down 8.2%), which is up EXACTLY 15.08% from $122. If you ignore the noise we have a 25% up move and a 40% retrace now (all in 48 hours) which is close enough to Fibonacci 38% to be called expected. The 3 day patten forms a nice base of support at about $140 and 140 * 1.05 = $147 and we rally back the next day to $148.09 (Monday’s gap open) and opened Thursday at $145.40, finishing that day at $146.49, up 20.07% from $122 and a mild pullback of the days high of $148.18 and a full 20% retrace off the 25% move, which means we’ve formed a possible bullish support.

    Yesterday the stock gapped up to open at $151.58 and peaked at $153.87, up 5.03% for the day after which we pulled back to close at $150.31, up 23.20% from $122 and up 7.3% from our new, tentative support at $147. What I’d like to see here is a pullback to $147 to confirm that level or a test of $152.50 to confirm a top on the long trend from $122.

    I will stress though that this is an art form more than a science and I fist look for broad patterns that confirm 5% levels before I start worring about them over the shorter term, when they are much harder to see forming.

    OK, so that’s the super quick summary version of the 5% rule but we can discuss it further as time goes by.

    Happy Birthday Demetrius (and family). My mom and my brother have the same birthday and every year he says “sorry about that birthday in the hospital mom (and at 9+lbs, he should be!)

    Andrew (coincidentally my brother’s name) – you are correct, as long as you have the cash for it, you are just banking $2 a month or whatever when you pay to roll your callers and the premium accrues to your intrinsic value. As I mentioned before, if you keep an eye on the profits from your basis, you’ll see, perhaps if you are up $50 on a $70 contract with 6 months to go and collecting “just” $4 in premium, that you have clearly hit that diminishing return I talked about which would prompt you to move on.

    The real worst case scenario is our MTU trade where we bought a breakout at $12.50 back on Jan 22st and picked up the Jan ’08 $12.50 calls for .72 and decided to see how it handled $12.50 as a retest. It failed miserably and dropped to $11.50. When it went back to $12.50 I got greedy and didn’t sell the March $12.50s since it was only Feb 21st and we all know what happened on 2/27 and this stock never recovered (but would make a nice play if we pull the global markets up from here). Probably if it wasn’t a relatively small entry I would have done something different but the position is effectively dead as are our BSX $17.50s, both so beaten down and so volatile that they aren’t worth selling against.

    Barclays – our markets would have a heart attack if our banks used blunt language like that!


  289. Oops, sorry Andrew, I misstated that. The proper thing to do is to book the $2.80 you pay your caller into your basis so you are NOT deluded into thinking you have a $50 profit on a $70 position after you’ve spend $30 buying back callers and it’s the diminishing returns on your adjusted basis that tell you when a play has run it’s course.


  290. lol thanks, that was a neat story with your brother. I do the exact opposite and tell my mum that I’m sorry for “not” being her birthday present. Pretty egocentric huh!

    To this day I’m still amazed how you (and your team) take the time to reply to pretty much every post. The amount of work put into the site is unreal. I have never seen so much value in a subscription before. Thank you.

    I was wondering if you could possibly migrate (or edit) the comments section to more of a forum style in the future. I would love to see people post charts / videos / etc, to explain their reasoning for entry and exit of a stock. I’m not a technical goon, but I like using technicals as a flashlight.


  291. After reading the site for the past couple of days (I’m new) I was thinking a similar thing to Demetrius. Would there be any way to incorporate visuals into the site so that members could post charts when they discuss trades? That could make some explanations much more clear and make the learning process a lot faster. THanks!


  292. Hi Y’all (In Memphis today!) Sub prime CFC article in Sacramento B
    http://www.tmcnet.com/usubmit/2007/09/02/2904960.htm


  293. If you guys know of a good way to accomplish allowing members to post images etc without dragging down the system then I’d be interested. On the whole, I’d rather keep the comment section clean but have people able to link to a graphics page we build so those with low bandwidth connection (palm, Rimm, IPhone etc) don’t get killed.

    Perhaps we can figure out a way to have a member post section, that might be interesting…


  294. Oh and for those of you who are getting psyched to bomb Iran:

    http://www.atomfilms.com/film/bomb_iran.jsp



  295. It wasn’t that depressing…. America may be a rounding error in terms of population, but it still does have a GDP greater than the People’s Republic of China. 12 vs 8. http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)

    Too few people control too much money in China. I think we live in a good world led by bad people.

    It’s just too much exploitation that is done to make money…. America exploits the environment. China exploits the people.
    All these reforms, and changes in political power, is just pushing on a string.

    I spent some time today with my younger cousins and realized that even the education system is corrupted. There’s more focus on memorizing the multiplication table, than the actual application of it. A grade 6 is lost without his calculator and cell phone.

    I usually ask children what they want to be when they’re older, and despite the variety of answers I receive, they couldn’t explain why they want to be that way. No one wants to change the world anymore, the trend is to normalize.

    This was odd to me, so I asked their teachers what they did. Highschool, gradeschool, whatever. They all told me they “teach”. Great so do I, what else do you do?.. And they couldn’t come up with anything other than lounge around.

    Not too sure about America, but in Canada, they have a month’s worth of sick days, 3 months of summer, couple weeks in march, couple weeks in Christmas, lots of benefits and a 8-3 job with several breaks in between. And a good wage that ranges from 40k to 100k. They’re jealous if people make more money than them, and they start rallys against staying after school for the children. Most of them are not exactly a role models. Obviously there are good teachers, but relatively, it’s a bad ratio.

    Professors are no better. A sociology prof failed me a few years ago because I called her an idoit for believing that she’ll be “rich in 25 years by investing X monthly accruing X% interest on her RSP (or RRSP, some variation of)”. I think some broker gave her a chart that if she invests 200 a month every year making 10% a year, she’ll be a millionaire by when she retires. I kept asking her “What about inflation, what if he loses money, what about taxes…”, but she refuses to listen by answering “inflation does not matter, a dollar is a dollar, and if he loses money i can write it off my taxes”.

    Great, you somehow single handedly made losing money a good thing.

    There are many others, I remember debating with the Chairman of the economics about how the consumer did not improve as exponentially as the statistics suggests. Sure we can buy a lot more junk, but that’s a spin off of globalization. A fridge from the 1950s will outlast one bought today. Not even taking the 50 year head start in account.

    I think the only real gage are maybe Lecia Cameras. They are still just as unaffordable yesterday, as they are today. The only thing that has changed is the technology in the cameras.

    Cars, electronics, dryers, cameras, tvs, etc. Are cheaper at the expense of quality.

    I went to trinidad and tobago recently, their children are a lot smarter than many first world children. For years trinidad has been a lagging indicator of the world.

    I honestly think the world is downhill.


  296. Phil, Tought your idea of a vix/dow index would be great. Are you thinking of inter day (10 mins or so) or daily? Is there an existing chart that measures this?


  297. If ate a book and vomited on the computer, it might be a more fulfilling read.
    I’m sorry for wasting your time, it was really off topic.


  298. Oh cmon Demetrius – America exploits the environment and China exploits the people ?

    Well I guess it /sounds/ good anyway.

    We need to take a lesson from China, the great environmentalist nation.

    Make our stringent pollution regulations like theirs.

    The world would be a better place…
    Right ?


  299. lol I never said china was an environmentally happy nation.

    They both exploit the environment and people…. Though I would say not equally…. I mean the whole invasion to the middle east was for what? To help the environment?…We killed so many trees in America in the 50s that we needed laws to help build them back… Sure we import most products now… But factories that make toys with Lead paint, toxic children’s glues, uranium, etc. We are responsible for, whether it’s in another country or not.

    Yes things are being done and we’re improving, but this cuts into profits. Which is bad timing if we are heading into a recession.

    As for the environmentally conscious, I think Germany would be better role model. I mean a V12 Mercedes Benz leaves a smaller footprint than a Toyota Hybrid…


  300. You are right, we do have tough regulations, that apply within our country.

    What does America make anyway that we don’t outsource?… Clothes? Toys? Cars? Electronics?… I think the F-22 Raptor was designed here atleast… but it’s also 10 times more expensive than the Russian equivalent.


  301. look i don’t want to America bash, I love America, and free market capitalism is the quickest way to be rich.


  302. Vixdex ™ – No I just invented it. As with anything I think we need to track dialy and 10-min performance to get a good picture but it’s daily average that would be key.

    Environmentally happy – that’s an interesting concept as we’ve already destroyed the environment and made enough money (still record corporate profits) to spend a little on playing clean(ish). For developing nations at this stage of development expecting them to shoulder the cost is effectively telling them to stop producting (which is what they accuse us of doing to them).


  303. Right – China exploits its people much more, and China exploits (I guess abuses is a much better word) the environment much more.

    And no, we are not responsible for making toys with lead paint. The Chinese are. WE arent responsible for poisonned dog foot either – the chinese are. We didnt tell China to make this stuff with poison in it – where our fault lies is that we may have expected to get goods made in china that are cheap, but of a quality thats up to our standards. If we didnt demand certain standards up front then we are naive fools — but it still isnt our faul that the chinese poison toys and dog food because its expedient and cheap.

    On a related note im surprised that people arent talkning more about the inflation thats gonna come about as a result of the Chinse having to take care of their environment and their workers, and haveing to make things to a certain standard. Its gonna be just one morelayer of the the inflation thats coming.


  304. Phil – wouldnt it be easier for developing nations to build in cleaner standards by virtue of the fact that they dont have to retrofit industry (as much) to do it ?

    Also its not our choice that they ruin their environment for us – its theirs. It is our choice that our companies buy substandard and harmful goods and redistribute them.

    I suspect in time we’ll reach a balance of quality/worker equity/environmental safety for price — but that price will be much higher. Outsourcing /anyting/ wont be the chip-shot it once was, as the friction of doing so wont be worth the diminishing returns as our economy becomes mediocre and evens out with the rest of the world.

    I see mediocrity as our national destination.


  305. Vixdex- (you’ll have to share the trick for the tm sign). I pulled the daily data for 2007 and plopped it into a spreadsheet, and now have a question about the index calculation. We consider VIX changes “normal” when we get a positive VIX bump with a negative DJIA change, and we want sirens and flashers when we get dead VIX reaction (small, neutral, or negative) to a DJIA drop.

    The issue I’m trying to figure out is the multiplication of negatives. In normal cases, we get these circumstances:
    DJIA positive, VIX neutral or negative == negative Vixdex
    DJIA negative, VIX positive == negative Vixdex

    Warning cases:
    DJIA negative, VIX neutral or negative == positive Vixdex?

    So if I understand this, we’re worried about the Vixdex popping above the zero line? Or maybe even approaching it?


  306. Hi Guys. I have a question. Lets say I have 1000 shares of CCJ. Now CCJ is a little over $40. If I sell the Sep $40 calls for 1.70 and somebody calls me away and get my shares before expiration do I still end up with $40 from my shares and $1.70 from the calls I sold for a total of $41.70 per share?
    Thanks


  307. Hubavka,

    Yes, Exactly


  308. djczing – I was on a rant, I over exaggerated on somethings. But do you really believe that CEOs just walk into a clean factory, and are manipulated by the Chinese that their products are of a high standard. They must have worked out the costs of paying out vs the gain of selling inferior products. Car companies do it all the time, they know about a problem in the car, but they release it to the public and recall afterwards (if they see a bigger benefit in doing so).

    No one in their right mind can go into a factory with grease and cock roaches running all over the floor, and expect food with no contaminants. Companies are responsible for the products they sell.

    The lead paint issue is just as ridiculous. There isn’t one type of paint for all applications. If you send a design over, you specify the type of paint used, and the colours. We have quality testing for this on our end… 1 on every 1000, 1 on every 10000. And the statistical models predict the likelihood of missing a bad batch.

    Naive is a better word, but that’s only on the Retail side of things. What about all the commodity producers? Having BP’s commercials flash on CNBC justifies how bad the rest are. Never-mind if BP is all that clean or not. Are we not responsible for that?

    Take any industry and you can blame it on other countries. But because we continue to outsource everything, and finance these operations, we are responsible. We’re the money in the world, if something is going to be changed, it has start from us.

    It’s one earth, we’re suppose to help each other anyway.

    I don’t really feel inflation would matter too much to china due to the environmental bit because inflation is relative, and if china is incurring these costs, then so would everyone else. I mean if America doesn’t care, and China is more expensive than another developing nation, America’s going to outsource somewhere else. Free Market Capitalism.

    China will slow, but with Blackstone’s investing in there, I don’t think it’ll slow soon or atleast have a hard landing. Blackstone is not stupid, and being private equity, they’re not there for the quick buck. I think T Boone is there too, not too sure.

    Phil – You’re right, I think some companies are paying a little more. Nike started the movement, I think. A while ago they increased their wages and working environment in developing nations — to please the public. With this said, there are arguments to say that factory workers are paid equal or above doctors and lawyers. But with unemployment so high in these countries, it is a meaningless statistic.


  309. from the Gobe and Mail 10:02 PM

    The vultures are circling Canada’s asset-backed commercial paper market, seeking to snap up securities on the cheap from distressed sellers.

    Toronto-based Cerberus Capital Management LP sent in a team of distressed debt specialists as the Canadian market for asset-backed commercial paper (ABCP) – very short-term securities backed by assets such as credit card loans and mortgages – imploded amid concern that some of the paper was backed by U.S. subprime mortgages that are going sour, sources said.

    Cerberus isn’t alone as distressed debt experts Fortress Investment Group LLC of New York and Brookfield Asset Management Inc. of Toronto are also looking to buy the paper at a substantial discount to its “par” value of 100 cents on the dollar, said people familiar with the market. At least one big U.S.-based brokerage firm is also looking to make a market in the securities. More than $30-billion of this paper is outstanding.

    full story http://tradersviews.blogspot.com/2007/09/debt-vultures-await-desperate-sellers.html


  310. Demitrius: Yeah I understand what ur saying and I cerainly mean no offense at all ( but I do like a good debate).

    As far as CEOs go, do you really believe an american CEO would think that they could get away with lead paint on childrens toys without significant financial and reputation damage ?

    From what I understand the issue with the lead paint was the paint vendor labelling leaded paint as lead free paint.

    Whats at risk for a corporation is ruin of a good name and a boycott of their products. Any CEO who thought they could get away with such shoddy standards would be a CEO who doesnt understand how the american consumer can turn a product or company off like a light switch if they feel its not good for their kids — especially something so blatant as lead paint. While I know some CEOs are downright slimy, I dont think any of them are that short-sighted.

    Perhaps the leaders of the Chinese companys almost literally falling on their swords is another subtle hint as to where the blame should go. The Chinese didnt start their transparent publicity and excuse campaign (blaming american design for their poison materials) until after no less than 2 of the chinese corporate leaders /died/ as a result of what – american design issues ? Our CEOs complicit scheme to provide our kids with life-long learning disabilities ? Methinks not.

    I think the Chinese are trying to keep up and produce no matter what, and cutting huge corners in the process. I think their regulatory process involves bribing the right politician to turn a blind eye to indiscretion. I think they just have to get a feel for what the consumers of their goods will put up with and slowly the system will come into balance, because surely the Chinese manufacturers are smart enough to know that products that are that substandard just wont be bought, although their recent PR campaign that tries to say its american design that is the reason for lead paint and antifreeze dog food is so blatantly flimsy that they either completely misjudge our intelligence or they are just saying something cuz they knew they had to say something.

    I think its likely there are good and bad companies, just like here – but there the regulation is lax or non-existant or pencil-whipped for a price, so theres more room for more companies to be more ‘loose’ with the standards. I think theyll get the hang of it — or their products wont get bought. We cant boycott them systemically of course or theyll plunge our economy into the abyss — of course they cant be too overzealous about taht cuz it might just plunge them back into the dark ages too – although if they are truly the global manufacturing base now, they have other legs that their stool can stand on.


  311. IKB to Post Full-Year Loss of as Much as $954 Million (Update1)

    By Chia-Peck Wong
    Sept. 3 (Bloomberg) — IKB Deutsche Industriebank AG, the German bank being bailed out by the government, will post a full- year loss of as much as 700 million euros ($954 million) and stop investing in international securities after wrong-way bets on subprime loans.


  312. Sept. 3 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke’s pledge to stop the credit-market rout from wrecking the economy failed to quell concern at the Fed’s Wyoming summer retreat that the U.S. is heading for recession.

    for more http://tradersviews.blogspot.com/2007/09/bernankes-pledge-fails-to-dispel.html


  313. thats $244 billion !

    Commercial paper, a short-term financing tool, declined by $244.1 billion, or 11 percent, in the three weeks to Aug. 29, the most in at least seven years, Fed data show. Three-month Treasury bill yields had their biggest drop since 2001 in August as investors sought safety in government debt.

    source http://www.bloomberg.com/apps/news?pid=20601087&sid=ac5M2fUfn77U&refer=home


  314. Phil, sorry about my name being highlighted in blue.Not really sure how that happened…will log out now.Hopefully it will reset to black type next time….


  315. Cleaner standards – if cleaner standards didn’t cost so much, we wouldn’t have so many EPA violators here. Worst is they are up-front costs in a build up so it’s hard to be competitive if you go clean and your competition isn’t. It takes sweeping, strictly enforced regulations to effect changes – there is no short-term economic benefit to the producers to cut down on pollution. That’s the logic behind carbon offsets, it creates a market for clean air and allows companies to begin to work the evironmental numbers into some forr of an equation other than a straight loss.

    Vixdex ™ (you put the “tm” between two brackets) – We’re watching the change in VIX relative to the Dow in movement so tracking the changes from close to close:

    Mon: DIA down 56, VIX up 2.00, Vixdex ™ = -3.57
    Tues: DIA down 281, VIX up 3.58, Vixdex ™ = -1.27
    Wed: DIA up 248, VIX down 2.49, Vixdex ™ = 1.004
    Thur: DIA down 51, VIX up 1.25, Vixdex ™ = -2.45
    Frida: DIA up 119, VIX down 1.68, Vixdex ™ = 1.41

    Since the VIX is currently rewarding negative Dow moves with positive VIX moves, we give a positive to up moves and a negative to down moves (we would also need to track an absolute number). Effectively we want to know which direction “calms” the VIX and the cross there is critical. I’m not sure how we can create a formula that lets us keep it that way but maybe we need a Vixdex Down and Vixdex Up signal and worry more about the deltas between the two.

    Looking at the week, it seems way too volatile for day to day movements but, on the other hand, I’d love to do an intra-day study of 10-min moves and come up with a daily average based on that.

    Obviously we need a much larger data series but it’s interesting that the average of Monday and Tuesday is in line with Wednesday so I guess keeping a running average to check the deviation and possibly the deviation itself is the significant number… The total average move for the week was -.975 on what was actually a flat week for the Dow and that’s interesting too, somehow indicating that the VIX is happy here?

    Quality – the question my Congressman will be asking is “Mr. US company, how many quality control inspectors do you employ at the manufacturing site in China and what is their procedure before they approve the shipment of millions of dollars worth of goods to the United States?” Sadly, the answer is almost unanimously Zero and None and that pretty much says it all. You can test food, you can test paint… BEFORE you buy it and put it in the hands of pets and children. If the companies here had the same quality control as the average drug dealer, our suppliers wouldn’t feel free to give us bad stuff!

    The only reason a company like MAT, which imports $4Bn worth of toys from China per year, can’t be bothered to hire 3 or 4 people to watch the factories is because they don’t want to force ther Chinese to make safer goods as it would cost more money. Also, why should they spend $500k/yr for QC inspectors who do nothing to speed the process and produce no immediate returns? ONLY GOVERNMENT REGULATION OF BUSINESS BACKED BY SERIOUS FINES WORKS! You can pray all day that the good nature of our fine entrepreneurs will prevail but laissez faire capitalism is nothing more than survival of the sleaziest and is an anathema to civilized society.

    Corporate interests align with consumer interests only in the same way that a farmer’s interest is aligned with the cows. As long as they can keep milking you, they will do as little as possible to feed and care for you as it only detracts from the bottom line. You will always get the least that it is possible to give you for what you are willing to pay and without a regulatory floor, it becomes a pretty sad downward spiral.

    Mike, no big deal. I think it’s supposed to do that if you have a website, that’s all.


  316. Asia Markets : Monday, September 01, 2007

    (The following is posted from WSJ; please cross check with other sources to confirm.)

    Japan*

    16524.93
    -44.16
    -0.27%

    Hong Kong*

    23904.09
    -80.05
    -0.33%

    DJ Shanghai*

    548.53
    12.97
    2.42%

    S.Korea*

    1881.81
    8.57
    0.46%

    India*

    15422.05
    103.45
    0.68%

    * at close
    Sources: Dow Jones, Reuters


  317. U.S. Housing Slump Could Spread Overseas – http://www.cnbc.com/id/20531811
    Weakness in the U.S. housing market could trigger an international slide in home prices that depresses the sector for years, a top housing specialist warned central bankers Friday.

    “The United States, as the premier example of a capitalist economy, has the potential to lead price expectations down in many countries,” said Robert Shiller, in a paper presented at the Kansas City Federal Reserve’s monetary policy conference in the mountain resort of Jackson Hole, Wyoming.

    “It is not improbable that we will see such large real price declines extending over many years in major cities that have seen large increases,” Shiller said.


  318. I feel that was a good debate. I lost, but learned a lot.

    djczing – Do not worry about it, I love debates. You’re right though, It would be very short sighted to see that from an American stand point, but why would the Chinese poison the hand that feeds? Who else buys their junk in such mass? It is really interesting that they committed suicide afterwards. Though, it would be a nice conspiracy to say they were killed… Even though the government backdrop makes it pretty easy to get away with it… 500k a year to hire inspectors or 100k every 5 to kill someone… I’m not going to push this argument cause it’s ridiculous to debate.

    Phil – I rarely believe in corporate surprises, but I guess we do what’s cheaper, because consumers like cheaper products (didn’t apple get the memo? No one is going to pay more than $200 for a phone, $1000 for a computer, and 50 bucks for a music player). Douche-bag economy. Biggest douche wins.


  319. I’m actually inspired to start a company with good morals, products, and services. I’ll start working on that today.


  320. VIXdex — use volume as an intensity multiplier on the index side of the equation, expecting that the higher the intensity, the bigger change in VIX — and the more stark if it doesnt change.

    I agree that american CEO wants margins as low as possible – but would never believe they would ever knowingly accept the low quality or outright poison in the toys or dog food or anythinglike that, and that if they knew of the deficiencies even before they perpetrated them on the american public they would halt distribution in its tracks anyway.

    As far as the Chinese go, its surely not a government condoned quality issue either, but rather each link in the materials/manufacturing chain trying to cut corners to either be able to supply the needed materials (such as if materials werent available in sufficient quantities at sufficient qualities), or to cut margins. You would think that now they know what constitutes going over the line and their corner-cutting wouldnt be quite so egredious in the future — especially if corporate heads have to die as a result. As far as US inspectors, why would the chinese even /allow/ US inspectors ? They dont work for Mattel – Mattel is jsut a consumer, although a consumer with a great deal of leverage over a toy manufacturer’s future. I did see a story about the Chinese government appointing a head product quality guy(I just saw the story in passing, dunno the details).

    Whats the old Chinese curse ? May you live in interesting times ?


  321. Major oil set to gap up Monday? I’m traveling and picking bits and pieces of news but hear of a Cat 5 hurricane? Anyone know if that’s true and or oil shorts doomed for Tues. a.m. open? Plan?


  322. CAT 5 is true but about 1,000 miles south of oil fields so far. Driving stats will trump supply issues next week.


  323. Demitrius “a company with good morals, products, and services”. The opened one right by my house. The “Phish Food” is the best. I love Ben and Jerry’s


  324. Phil, do you think you could post a very detailed mattress play explanation. I’ve been a member for nearly a year and I have a good understanding of your mattress plays but there are still some nuances I think I’m missing. I think this would be VERY beneficial for most of the readers and that way you can post it in the Education tab and never have to answer questions about it. I think your previous post from March on the parachutes play is not detailed enough for many of the members who are now becoming fairly sophisticated traders. Thanks, Phil.


  325. Vixdex[tm]- I’m seeing a lot of noise in the data. The division operation creates big spikes on days with small moves in both DJI and VIX. We could probably clear things up with an exponential smoothing, but may lose our signal then. The most interesting thing I’ve found so far is simply patrolling for days in which a negative DJI move corresponds with a negative VIX move:

    So far this year:
    - Jan 9 (0.9)
    - Jan 17 (1.5)
    - Jan 26 (0.45)
    - Feb. 2 (1.15)
    - Feb. 22 (0.02)
    - Mar. 7 (3.6)
    - June 18 (1.7333)
    - Aug. 21 (3.6)

    There might be a couple more on otherwise neutral days, I’m filtering out days with less than 10pt move in the Dow by setting their Vixdex[tm] to zero, to keep the aforementioned huge spikes out of the index.

    As I look at the data, I keep thinking about tides and the “orbital mechanics” theory of the markets from earlier this year. There’s a lot of ebb and flow in the daily movements. Maybe instead of trying to fit the data to a linear function, there’s a different model?


  326. Hurricane Felix: http://www.nhc.noaa.gov/refresh/graphics_at1+shtml/143027.shtml?hwind120#contents

    It is moving lower than Dean, which turned into a flop.
    In 36 hours. 40% chance of being a cat 1. 20% cat 2, 20% cat 3. 10% being cat 4 or greater.

    It looks like it’s a smaller hurricane than Dean was, I wouldn’t worry too much. But only time will tell for these things.

    ———-
    You’re right about china, it’s unlikely that CEOs are that cruel if that was the only case. But how do explain all the other sectors outside of china that we finance. Haliburton is there for the people?

    I’ll give you an example, my uncle was chair of some oil company in small country. He has a PhD from oxford and harvard, in the who’s who book, youngest professor ever there, blah blah, but at the end of the day he took advantage of the people, government, and the environment. Later he was caught up in some scandal, and ran to America in response to.

    At the end of the day, he knew what he was doing and the chances of being caught. There’s no morality in business, just calculated risk, but sometimes the numbers work against you.

    if I made a batch of cars, and know that if this car was hit in a certain way that the interior would burst into flames. Would I still produce it?… A moral person would say no this is ridiculous, I can’t enforce people getting hurt. A CEO looks at the numbers.

    “5 in every million will be hit this way”
    “1 in every 3 would sue”
    “1 in 2 cases we will lose”
    “payout average would be 10 million”
    “brand image recovers in x days”

    This is what you learn for your mba, but they replace the situation to something more socially acceptable. You can even reason with yourself and say “well it’s only 5 in every million will be killed”. How can you treat people like statistics to make you sleep at night.

    “well if they don’t do it, they’ll go bankrupt”.

    I understand the argument, and it’s shitty, but that’s putting monetary value on life. The real trick is to not mess up in the first place.

    “That’s impossible”

    No it’s not impossible, it’s just innovation is costly and time consuming. What if 1 in a 1000 people died?

    “That’s impossible”

    Maybe. I was going to say long term capital as an example, but I’m sure we can give more current hedge funds that rely on statistics to tell you that the impossible just happened. Hell it happens every 10 years.


  327. I don’t know anything about your VixDex or how it works, but I think it should rely only on volume reversal days as part of it’s statistics. Anything else can really be manipulated by hedge funds.


  328. I think the data would need alot of smoothing – and its already known that statistical volatility and implied volatility go through different degrees of correlation.

    When you are measuring the index movement (should you be using SPX??), are you measuring raw open-to-close moves ? or high-low difference ? I would think the high-low difference would be a more correlated measure.

    When you get right down to it, perhaps it might be more useful to use put to call IV skew on SPX or something as a measure of the ‘steepness’ of sentiment. Perhaps a volume distribution would be useful — plot a distribution curve of volume-per-strike for the 10 strikes on either side of ATM perhaps.

    Interesting exercise in any case, and itd be great to have what would be a very useful indicator.


  329. VixDex – what we are looking for is signs that the VIX is going down to confirm a market direction so the assumpltion is that VIX 0 means there is little dispute about the movement of the market whereas VIX 40 means we have to think there is a lot of pressure going the other way. Within this rise and fall of the VIX (and the Dow) the shorter pattern we are looking for is the a trend in the VIX that indicates it is turning, in other words that while it may strongly object to a 300-point dip in the Dow one day with a 4-point gain, a week later perhaps another 300-point dip only takes it up 2.5. That may indicate (especially if we are getting corresponding negative shrinkage on up moves) a serious turn in the markets is pending.

    As to the 1 in 5 million thing. Pretty much everything will kill someone, including roller coasters, airplanes, drugs… and there are perfectly logical and moral reasons for doing a cost/benefit analysis on human life. People do die and quality of life can (technically) be measured so if length and quality are measurable items then it is reasonable to tinker with them on a balance sheet. Those choices are (or should be) very hard to make and the real problem is that CEO’s are taught the numbers but not philosophy so they don’t tend to value the human element with perhaps the weight it deserves.

    As I said about Mattel, it’s a systemic problem but it all breaks down at the weakest link. Let’s say a hamburger can give you mad cow disease but it’s very unlikely, 1 in 20 million.

    McDonalds serves 20M hamburgers a day so one death a day would likely cause a p/r problem.

    Obviously the consumer has no way to check, they bite the hamburger and die, no test will save them as they take that first bite so there is nothing the consumer can do about it.

    It is impractical for McDonalds to check 100% of their raw meat, not impossible, but impractical and it would probably double the cost so they elect not to, possibly condeming 365 people a year to death. Simply crossing this line, they have already made the decision to kill a customer at some point.

    McDonald’s instead elects to put pressure on the suppliers, who put pressure on the farmers to monitor their herds more closely, this cost is passed on to the consumer and the whole system breaks down if a single farmer (perhaps 20,000 suppliers) fails to inspect or purposely ignores signs.

    These are the kinds of risks that are being taken with your life every day by corporations. The fact that they actually had to pass regulations requiring US car makers to install seat belts, air bags and safety glass (because the other kind of glass had a nasty habit of severing arteries) pretty much shows you where their heads are at. Hair dryers kill someone every year and a simple fuse built into the plug for perhaps $5 would eliminate that threat – someone decided it wasn’t worth it and instead they suggest using GFCI circuits in your house, so it puts the burden on the consumer to rewire their homes, taking the responsibility off the appliance company.

    In reality, we live in a country that allows 48M people to live without health care, certainly killing some of them outright but also shortening the lives of all of them by perhaps 5 years (being generous). That’s 48M * 5 = 240M years with an average life expencancy of 72 (but not for them), that’s 3.3M full lives taken away over 72 years or 46,000 murders a year through lack of health care. Let’s say it would cost $100Bn a year to insure these people, so that’s about $2M per life, pretty much in line with what most companies value them at in lawsuits.

    Good luck getting McDonalds to hire 20,000 site inspectors at $50K each or $1Bn a year to protect what they consider a possible loss of one life every couple of years. The same goes for the drug companies – Merck FOR A FACT let people die (even covered it up) and their company is worth the same as it was before they got caught.

    It’s just business, nothing personal…


  330. Perhaps to make the analogies more comparable, we should ask whether an american CEO of McDonalds would /only/ buy cows with mad cow disease because they were cheaper, or whether an automotive manufacturer would knowingly distribute vehicles that explode most of the time (ok, KIA would.. nevermind).


  331. You’re both absolutely right, it’s unrealistic to expect 100% safety,. Mind you it was my birthday yesterday, and I had too much to drink. Scotch hang overs are the worst.

    With that said, it’s really the whole lowering the bar that gets me. I think Mercedes was the first one to have air bags, seat belts, and abs in their cars. They even built the first car. They do steps in the right direction. When other CEOs cookie cut to help their bottom line at someone else’s expense, thats what really intrigues me. It just seems counter productive.

    How is KIA still a company!? Who supports them?

    Btw, isn’t this cool tech or what: http://youtube.com/watch?v=ysEVYwa-vHM


  332. “Who do think is the next country to invade”
    the one black guy in it is hilarious. “Russia, china, brazil, canada”
    http://youtube.com/watch?v=fJuNgBkloFE


  333. Phil,

    Checkout the graphs in this real-estate blog, amazing declines, and its only getting started. I know you’re the Carcorian (not sure on the spelling), but she is way off base about the market.

    http://www.californiahousingforecast.com/guestcolumn/2007/10/1/median-listing-prices-for-october.html?ref=patrick.net